Preamble

The House met at half-past Two o'clock

PRAYERS

[MADAM SPEAKER in the Chair]

Mr. Tom King: On a point of order, Madam Speaker. The Prime Minister is to make an extremely important statement at 3.30 pm. I have sought to get a copy of the proposals which I understand were published in Belfast. I have asked the Vote Office, which has no copy but expects one shortly. There was said to be a copy in the Library. In fact, there is not a copy in the Library, and that makes it extremely difficult for right hon. and hon. Members to respond. May I ask for your good offices, Madam Speaker? I have General de Chastelain's report, which is now available, but we do not have a copy of what, apparently, was agreed.

Madam Speaker: I understand that a copy will be made available in about half an hour. That should give Members ample time to get it before the Prime Minister speaks on it.

Oral Answers to Questions — SOCIAL SECURITY

The Secretary of State was asked—

Retirement Pensions (Upgrading)

2. Mr. Bill O'Brien: What progress is being made on the upgrading of retirement pensions; and if he will make a statement. [88023]

The Secretary of State for Social Security (Mr. Alistair Darling): A statement on uprating will be made at the normal time. Pensioners will share in rising national prosperity.

Mr. O'Brien: I appreciate all the contributions that have been made and the work that has been done by the Government to help pensioners. The present Government have done more since the general election than was done in 18 years under Conservative Governments. However, my concern now is for today's pensioners. Increases in water charges and in the television licence fee, and the fact that pensioners must now pay more for reduced services, mean that the increase in their outgoings is greater than the increase in the cost of living, according to which their pensions are calculated. That is driving more people into the poverty trap.
Now, we have the threat of the reduction or withdrawal of housing benefit. More than 50 per cent. of pensioners in my constituency receive that benefit, and its loss will

be tragic for pensioners. Will my right hon. Friend take account of my concerns—which are shared by millions of pensioners—and assure us that today's pensioners will not lose out and that their quality of life will not be eroded?

Mr. Darling: First, there is no question of pensioners losing housing support. All Governments have recognised that it is necessary to ensure that pensioners can meet their housing costs, and that will remain the case. However, my hon. Friend raises an important point. One of the problems that we have inherited is that, in this country, the gap between rich and better-off people and poor people has never been greater. The same applies to pensioners: the gap between better-off and poor pensioners is at its largest for very many years.
The Government's objective is to help today's poorest pensioners by giving them the minimum income guarantee. We are spending an extra £4 billion during this Parliament to help the pensioners whom my hon. Friend mentioned, who lost out in the Tory years. We have more to do. We are increasing the winter fuel payment fivefold this year and we are determined to ensure that, in future, pensions provision is structured far better than it was in the past, so that we never again have a large number of elderly people left with very little support—as we did when the Tories were in power. We are starting to tackle that and put it right.

Mr. Edward Leigh: The Labour Government consider that the existing state pension is inadequate, which is why they are introducing the stakeholder pension. However, has the Secretary of State seen a recent report published by the Institute for Fiscal Studies which shows that, instead of introducing the stakeholder pension, the Government could have achieved the same ends by reforming existing pension arrangements? Instead of setting the cart before the horse by introducing the Bill before the consultation period, why have not the Government come forward with a simple reform, buttressing the contributory principle and ensuring that people in future have a decent pension instead of the bewildering array of stakeholder and second pensions, which is confusing people and not achieving the Government's aims?

Mr. Darling: We inherited a situation where, after the Conservatives' 18 years in office, one person in three of working age was liable to retire on income support right from day 1—such was the inadequacy of the pension provision that the Tories left us. We have ensured that the basic state pension remains the foundation of pension provision. We have introduced the minimum income guarantee for the poorest pensioners. What is more, we are making changes to ensure that people can retire on more than that minimum income guarantee because, if they do not have occupational pensions, or if it is not appropriate for them to be in personal private pension schemes, they can get access to a funded pension through stakeholder pensions.
I am not sure how up to date the hon. Gentleman keeps on these matters, but I would say to him that the approach that we set out in our Green Paper last December has been almost universally endorsed. By contrast, there has been absolute silence from the Tories as to what their pension policy is. We do not know. Perhaps, under the new


regime, there will be a pensions policy, but until they get a pensions policy perhaps they should consider the benefits that our reforms will bring.

Mr. Chris Pond: I welcome the progress that has been made on welfare reform, but is my right hon. Friend satisfied that enough has been done, and is being done, on welfare reform to meet the challenges of the 21st century?

Mr. Darling: We have made a very good start in the first two years. We are the first Government ever to express our determination to eradicate child poverty within 20 years—something that the Tories never did, or would do. We are making changes to the benefit system to ensure that work pays and to ensure that people cannot be written off—or be allowed to write themselves off, as happened under the Tories—and we are making long-term changes to the pension structure, which was long overdue. However, we have far, far more to do, and we will not be deflected from reforming the welfare state, ensuring that a system that was designed 60 years ago is brought up to date. We have made a useful start; we have much more to do, and I am determined that we will see it through right to the end.

Mr. David Willetts: I presume that the Secretary of State means that he will not be deflected by his own unhappy Labour activists, who were causing him so much trouble at the weekend. Can he confirm that the value of the pension will be one of the subjects covered in the welfare policy review that he was forced to offer his unhappy supporters, such as the hon. Member for Normanton (Mr. O'Brien), at the weekend? What other Government policies will now be reviewed under pressure from the right hon. Gentleman's party activists? At a time when the Government are presiding over an increase in welfare spending of £38 billion over three years, the last thing we need is yet another roadshow.

Mr. Darling: The hon. Gentleman has some cheek in lecturing us on social security spending. Despite all the rhetoric, over the 18 years during which the Conservative party was in power, Conservative Governments increased social security spending by 90 per cent. Under the Labour Government, the rate of growth of the social security budget is half what it was under the Tory Government. We are ensuring that the money that we spend is spent to the best possible effect. That is why we are spending a record amount on increasing child benefit to alleviate and then eradicate child poverty. That is something that the Tories never did.
We are ensuring that work pays so that people get off benefit and get into work. That is something that the Tories opposed and did nothing about for the almost 20 years during which they were in power. We are also addressing other problems that they left us. We have a generation of pensioners who lost out because of the inadequate pension provision made by the Tories. As I said to my hon. Friend the Member for Gravesham (Mr. Pond), we have made a start, but there is a great deal more to do.
Unlike the Tories, we are not prepared to tolerate a situation where a benefit system designed for a different generation in different times becomes increasingly out of date. We shall make the changes that are necessary to

ensure that we have a benefit system that makes work pay and provides work for all those who can work as well as providing security for those who cannot.

Mr. Lindsay Hoyle: Will my right hon. Friend ensure that pensioners in Chorley and throughout the country will not be failed by the Labour Government—unlike the Conservative Government, who presided over 18 years of failure? That is a trap into which we should not fall. Will my right hon. Friend ensure also that, whenever possible, he will increase the basic pension for all our pensioners?

Mr. Darling: We certainly will. As I said to my hon. Friend the Member for Normanton (Mr. O'Brien), many pensioners' incomes have increased, mainly as a result of occupational pensions. The problem is that many more pensioners have lost out. Over the years during which the Tories were in power, some pensioners became poorer and poorer, and the Tories did nothing about it. The minimum income guarantee, the fivefold increase in the winter fuel allowance, the return of free eye tests and a host of other measures, including increasing investment in the national health service—all these things were opposed by the Tory party—mark the difference between this Government, who are concerned about the well-being of pensioners, and the Tory party, which both during its time in office, and now, it appears, in opposition, has had nothing constructive to say.

All-work Test

3. Mr. Stephen Day: If he will make a statement on his proposals to reform the all-work test. [88024]

The Parliamentary Under-Secretary of State for Social Security (Mr. Hugh Bayley): There is a provision in the Welfare Reform and Pensions Bill to replace the all-work test with the personal capability assessment. The personal capability assessment will determine entitlement to benefit in the same way as the all-work test has done hitherto. In addition, it will provide constructive information about what a person's medical condition or disability would allow them to do and advice on practical measures which might improve their chances of returning to work. This will enable personal advisers to help people identify and overcome the barriers that they face and take steps back into employment.

Mr. Day: Is the Minister telling the House that there will be no change to the criteria applied by the new system, as opposed to the all-work test? Will there be a change in the frequency of the periodic review? Will the information that claimants have to provide change in any significant way?

Mr. Bayley: I am surprised by the hon. Gentleman's question. It is clear that he has not been following the debate. We have made it clear time and time again that the functional ability tests which existed in the all-work test will be repeated in exactly the same way in the personal capability assessment, so that entitlement to incapacity benefit will not change in any way. However, there will be a change in that the test will stop ghetto-ising


people into incapacity benefit and will start examining the way to get them off benefit and into work. That is the difference.

Ms Rosie Winterton: Will my hon. Friend say how the new tests will assist people who have mental health problems? People with mental health difficulties sometimes feel that the present system does not meet all their needs because their needs may be less tangible than those of people with physical incapacities. In my constituency, the benefits advice and tribunal unit feels that the presence of a qualified psychiatrist at an assessment would be helpful in recognising the needs of people with mental health difficulties.

Mr. Bayley: I welcome my hon. Friend's question. She is right that concerns have been expressed about the way in which the test deals with people suffering from mental health incapacities. We are not changing in any way the threshold of entitlement to benefit, and people who currently meet the criteria will in future receive the benefit. The special procedures that apply to people with mental health problems will continue. Claimants suffering from a severe mental illness will in future, as in the past, be wholly exempt from the all-work test.
It would not make sense to ensure that the test for certain groups of people was undertaken by a consultant psychiatrist, but it makes absolute sense to ensure that all the doctors conducting the all-work test are trained to deal with the psychological and psychiatric conditions presented to them. We are introducing better training for the doctors who undertake those tests, and in collaboration with the Royal College of Physicians we are introducing for the first time ever a qualification in disability assessment management, which will lay a benchmark of good practice that will be used within the service.

Madam Speaker: I notice that the hon. Member for Cheadle (Mr. Day), who put the original question, has already left the Chamber, before hearing the final answer. I hope that hon. Members will note that that is not the way to behave.

Mr. Elfyn Llwyd: The Minister knows that recently the composition of appeals tribunals hearing all-work test appeals was changed to allow for one professionally qualified chairman and no lay people. Will the new system encompass the fairer, older system? The change to one legally qualified chairman is seen as rubber-stamping a larger number of appeals being turned down.

Mr. Bayley: I can reassure the hon. Gentleman that, under the new regime, which is now fully operational, a minimum of two people will be required. I hope that the hon. Gentleman will agree that it was vital to speed up the appeals process, because justice delayed is justice denied. Many people had to wait months to have their appeal heard. That was unfair, so it was necessary to reform the system, which the Government have done.

Carers (Second Pension)

4. Mr. Paul Goggins: What progress he is making with the introduction of a second pension for carers. [88026]

The Minister of State, Department of Social Security (Mr. Stephen Timms): There has been a wide welcome for our manifesto pledge, now confirmed in the pensions Green Paper, to allow carers to build up a second pension. We are working on the details at present. We expect 2 million carers to qualify for credits each year. We are aiming for legislation in the next Session and for credits to commence in 2002, when the state second pension is due to be introduced.

Mr. Goggins: I agree with my hon. Friend that the announcement of a carers pension is popular. May I press him on the situation of carers who should qualify for a second pension because they have been awarded invalid care allowance? The Green Paper states that qualification is automatic for carers who are in receipt of invalid care allowance, but in practice some carers who are awarded invalid care allowance do not actually receive it because they are in receipt of other contributory benefits, such as widows benefit or incapacity benefit. Will my hon. Friend confirm that the award—and not necessarily the receipt—of invalid care allowance will lead to entitlement?

Mr. Timms: My hon. Friend raises an important point, and the answer is yes. Credits will, as he says, go to recipients of invalid care allowance and to those receiving child benefit in respect of children under five, and credits will also go to people in the circumstances that he described—people providing care for people receiving attendance allowance and the middle and higher rates of disability living allowance, but who do not actually receive invalid care allowance, in many cases for the reasons that my hon. Friend outlined. It is an important step forward for carers and recognises the immense contribution that they make.

Mr. Steve Webb: In the reform of pensions for carers and others, does the Minister believe that simplicity is a virtue?

Mr. Timms: Indeed I do. That is why the state second pension is being reformed, to ensure that on retirement, everyone who has worked and contributed throughout his or her life will be delivered an income above the means-tested threshold. That is a simple goal which has been widely welcomed and which the entire House will recognise as the right way forward.

Family Incomes

5. Mr. Ben Chapman: What action his Department has taken to improve the situation of poorer and working families. [88027]

The Secretary of State for Social Security (Mr. Alistair Darling): In April, we increased child benefit by the largest amount ever. In October, the working families tax credit will be introduced, helping an extra 500,000 families and providing an income guarantee for every family in full-time work of at least £200 a week. Those reforms, together with other tax changes, will mean that a family on £13,000 a year will be better off by up to £2,500 a year.

Mr. Chapman: Does my right hon. Friend agree that the situation we inherited when the Tories left power—


one in three children being brought up in poverty—was an absolute disgrace? Although I warmly welcome the Government's commitment to eradicate child poverty within a generation, what practical steps are being taken now to help the plight of children? That is what concerns people most.

Mr. Darling: I agree with my hon. Friend, which is why we have been increasing child benefit by large amounts—a record amount last year and this. In addition, the working families tax credit, which the Conservatives are pledged to abolish, will mean that, because of the Labour Government, a family on £13,000 a year will be £2,500 better off than they would otherwise have been. That measure makes the case for welfare reform: it will make work pay, provide security for those people about whom we ought to be concerned and ensure that we eradicate child poverty within a generation. The Tories did absolutely nothing about that when they were in government.

Mr. Julian Brazier: Will the Secretary of State confirm that the working families tax credit will have an impact on families also drawing housing benefit, whatever his long-term plans for benefit reform may be? Hundreds of thousands of families will face a combined tax and benefit withdrawal rate of 89 per cent. Such conditions will hardly encourage them to help themselves.

Mr. Darling: The hon. Gentleman—unwittingly, I suspect—makes the point that further reform is necessary. The working families tax credit reduces the effect of marginal rates of taxation for poorer families, but he is quite right: housing benefit also needs to be reformed—not only because its administration is inefficient and expensive and because it is open to fraud and abuse, as all of us know, but because it acts as a disincentive to many people who ought to be in work. Unfortunately for him, he is making the case for further reform of the benefits system. I repeat what I said earlier: we have made a start, but there is a great deal more to do to ensure that the benefits system, as well as providing security for those who cannot work, makes work pay.

Ann Clwyd: I think I can anticipate my right hon. Friend's reply, but I shall ask my question nevertheless. There is a real sense of grievance among my constituents who previously received reduced earnings allowance, which, as we know, was abolished by the Tories. In opposition, we made strong criticisms of that abolition, and there is a real sense of betrayal—I do not think I am putting it strongly enough—among the people who came to my surgery this weekend saying that they are £30 to £40 worse off as a result of that. Will my right hon. Friend look at this matter again?

Mr. Darling: I am well aware of the point that my hon. Friend makes. She is quite right that, suddenly and unexpectedly, the Conservatives cut the rate of REA, which miners thought they would receive after had they retired. The problem is that that benefit was meant to replace people's income when they were in work. That is clearly difficult for people who have entered into commitments. I say my hon. Friend, as I have said to many of her colleagues, that I am prepared to look at this matter, as I am prepared to look at all parts of the benefits

system, but I do not want to raise her expectations or those of her constituents and I am not giving an undertaking that I will be able to resolve the problem to everybody's satisfaction. I think she understands that.

Mr. David Rendel: Does the Secretary of State accept that it is particularly important for poor working families that their children should remain dependent for as brief a time as possible and should get jobs as soon as possible after they finish their education? Does he not therefore think that it is time he did something about the young people who are sometimes held up for five months before they receive national insurance numbers, thanks to the failure of the NIRS2 system? A number of businesses are refusing to give those young people jobs until they have national insurance numbers.

Mr. Darling: Many young people go straight into jobs on leaving school, but we want to ensure that many more go into higher education to achieve better skills and qualifications. Secondly, the new ONE service, which will bring together the Employment Service and the Benefits Agency, will mean, for the first time, that someone of working age will receive advice immediately on entering the system.
Thirdly, I am well aware of NIRS2 problems, which we inherited from the Tories—[HoN. MEMBERS: "Oh, come on."] The Tories signed the contract, and they must take complete responsibility for a system that did not work. The problems are being overcome. I am glad to hear that the hon. Member for Newbury (Mr. Rendel) supports our general thrust; that is why I find it hard to understand why he wants to take his party into closer allegiance with the Conservative party.

Mr. Frank Roy: On the point about working families, my right hon. Friend will know that Scottish schools are on holiday. While teachers are paid during the holidays, cleaners and dinner ladies are not—and nor are they entitled to jobseeker's allowance or any other benefit. Does the Secretary of State have any plans to redress that unfair anomaly?

Mr. Darling: I am fully aware that Scottish children are on holiday—and that we are not. I am aware of the problem to which my hon. Friend refers. About two months ago, a commissioner's decision stopped the Department of Social Security paying benefit to the dinner ladies in question. The case has been appealed to Scotland's supreme court, the Court of Session, and we should receive a definitive ruling before too long. Many dinner ladies may be entitled to some help from the Benefits Agency, and if they are in any doubt, they should contact the local agency. I shall keep the situation under review, particularly once we have received the Court of Session ruling.

Stakeholder Pensions

6. Mr. John Wilkinson: What discussions his Department has held with representatives of pension funds about the Government's proposed stakeholder pensions. [88029]

The Minister of State, Department of Social Security (Mr. Stephen Timms): Ministers and officials have benefited from numerous meetings with representatives of the pensions industry, including those from personal pension and occupational pension funds. Pension fund representatives are receiving our consultation documents on stakeholder pension schemes and will help us to get the detail right.

Mr. Wilkinson: Would it not have been wiser to wait until the Green Paper consultation period had ended before initiating legislation? Is it not clear that both the Government's required top limit of 1 per cent. on annual fees and the low level of contributions—down to 10 per cent. a month—will squeeze life offices and pension funds that are already suffering severely under the Labour Government? Is not the axing of 4,000 jobs by the Pru a foretaste of things to come unless the Government listen and change their mind?

Mr. Timms: We consulted widely on the framework for stakeholder pensions contained in the Welfare Reform and Pensions Bill before the Green Paper was published. I listen with interest to the hon. Gentleman's appeals on behalf of the insurance industry. It is our ambition that every employee in Britain should, for the first time, have access to a good-value, dependable funded pension.
We are driving a hard bargain on behalf of scheme members, and we are absolutely right to do so. The Government and the industry need to pull out all the stops to persuade millions of people that it is worth their while to save for their retirement. We shall not do that if charges are excessive, as they have too often been for personal pensions. The financial services industry is perfectly capable of producing the good value that we need. Our job is to ensure that good value is delivered for stakeholder pensions.

Mr. Frank Field: I congratulate the Government on the extensive consultation on their welfare reform programme, and I welcome the extension to the consultation announced yesterday. However, there appears to be a contradiction between a stakeholder pension policy that relies on voluntary saving, and the introduction of a minimum earnings guarantee, which will make it impossible for many workers to save enough to be better off than they would be under the guarantee. Will the review announced yesterday consider that matter?

Mr. Timms: I do not believe that there is any contradiction. As formulated, the state second pension will take people above the minimum income guarantee if they have saved and contributed throughout their lives. If, instead, they are in a stakeholder pension, it, too, will contribute.
On the point about compulsion, the problem is that many people cannot afford to save. Already, 4.6 per cent. of national insurance goes towards their pension, and for low-paid people extra compulsion is simply not on. That is why the state second pension is being designed to provide a real incentive for voluntary extra saving, and that is what I believe our scheme will achieve.

Mr. Michael Trend: Following the Minister's reply to my hon. Friend the Member for Ruislip-Northwood (Mr. Wilkinson), let me say that

surely a basic premise of the stakeholder pension scheme is that it will be popular because there will be a set 1 per cent. annual charge. Will the Minister confirm that the Government are sticking to, and will continue to stick to, that 1 per cent. figure?

Mr. Timms: I can confirm that we shall drive a hard bargain on behalf of scheme members. We are in consultation, and we shall take account of everything that we hear in response to the proposal. I am grateful to the hon. Gentleman for giving me the opportunity to correct a misapprehension under which the shadow Secretary of State, the hon. Member for Havant (Mr. Willetts), is labouring with regard to the consultation process. I welcome the hon. Member for Havant to his new position, and I accept that it is a tough brief to get on top of, but I informed the hon. Gentleman and the House last Wednesday that we published two consultation documents last month and we plan to publish four more this month. The hon. Gentleman issued a rather bizarre press release under the heading "Conservative Party News", in which he said:
That brings the total number of such documents to a staggering 10".
We shall have published six documents, not 10—two plus four equals six, not 10. That remains the position.

Mr. Terry Rooney: Has any pension fund provider or any life assurance company opposed the principles of stakeholder pensions?

Mr. Timms: No, they have not. They have warmly welcomed them. As my right hon. Friend said, there has been an almost universal welcome for the principles which we have laid down and which are contained in the Welfare Reform and Pensions Bill. It is important that we now work with the industry and everyone else with an interest in this matter to get the details right.

Benefits (Orthopaedic Patients)

7. Mr. Anthony Steen: What estimate he has made of the cost in social security benefits of the waiting times experienced by patients for orthopaedic (a) consultations and (b) operations. [88031]

The Parliamentary Under-Secretary of State for Social Security (Mr. Hugh Bayley): Spending on social security benefits is affected by very many factors, and it is not possible to isolate the benefit cost of waiting for orthopaedic treatment.

Mr. Steen: Will the Minister explain to the House why 25-year-old Jason Ganney of Buckfastleigh will be on state benefits until October 2001, as he has been told that that is the earliest date on which he can have a knee operation? He injured his knee while playing rugger for the Buckfastleigh Ramblers against the Exeter Saracens. He is a skilled young man. He is married and his wife is expecting a child, but he cannot look after her and has to stay on state benefits because the national health service cannot give him a date before October 2001 for a minor knee operation. Is that not disgraceful?

Mr. Bayley: I have seen the correspondence between the hon. Gentleman and the Secretary of State for Health,


and it is for the Department of Health to answer on health matters. I shall confine myself to the social security matters. The hon. Gentleman raises an interesting point. He will be aware that the new deal for disabled people is already addressing the need to ensure that people who suffer an injury while in work can retain their jobs.
The national health service inherited from the previous Government a terrible legacy on waiting lists. The Secretary of State for Health said that it would take a 10-year programme to rebuild the national health service. However, there has been substantial progress already. An additional £417 million was provided for waiting list initiatives last year, and another £320 million this year. The number of people on waiting lists is considerably lower nationally, and lower by 4,600 in Devon, which is a 14 per cent. reduction. The Secretary of State for Health will continue to press for a reduction in waiting times for all treatments.

Social Security Appeals

8. Helen Jones: What steps his Department is taking to improve social security appeals procedures. [88032]

Mr. Clive Efford: What steps he is taking to shorten the waiting times for appeals for incapacity benefit and disability living allowance claimants who have had their benefits stopped. [88036]

The Parliamentary Under-Secretary of State for Social Security (Angela Eagle): As we announced on 23 June, we are improving procedures for making decisions and handling appeals. These changes will help our clients, including those whose incapacity benefit or disability living allowance has been stopped. The Independent Tribunal Service has already taken action to shorten the waiting times for appeals, and is now making significant inroads into its backlog of cases.

Helen Jones: I thank my hon. Friend for her reply.
Although I have raised the matter in the House before, many constituents are still contacting me, almost in despair over the time that they are having to wait for their appeals to be heard. Does my hon. Friend not agree that that is an unacceptable burden to impose on people who are already in a very vulnerable position? Can she assure us that she will continue to monitor the situation, to ensure that the mechanism we introduced to improve appeals tribunals is delivered and that people are given decisions as speedily as possible?

Angela Eagle: My hon. Friend makes a case for speeding up reform that cannot be questioned. I could point out that, again, the problem is due to the legacy of the Conservative party. There are backlogs of seven months. That is why we changed the system in the Social Security Act 1998, as a result of which new decision-making and appeals procedures are now being introduced. The chief executive of the new Appeals Agency has been set tough targets.
In February there was a backlog of 70,000 cases, or 50 per cent. of the case load. By the end of May, that backlog had been reduced to 34,000, or 30 per cent.

of the case load. As I have said, significant inroads are being made, but we are not complacent about the task that faces us.

Mr. Efford: I, too, thank my hon. Friend for her answer; but does she share my concern about the number of claimants whose benefits are being stopped as a result of inadequate information given to adjudicators by medical examiners, and about the impact that that is having on the backlog? What steps can she take to improve and monitor the actions of medical examiners, to ensure that they perform better in the future?

Angela Eagle: There are many reasons why tribunal cases may be adjourned, or tribunals may not be able to reach a decision. We are trying to deal with all those reasons. Sometimes bad administration is to blame, but, by means of the new decision-making and appeals processes, we are monitoring the standard of work closely. Reports will be made to Ministers on how that is going. I hope that a significant improvement can be made in all these areas, but especially in administration.

Mr. Tim Boswell: Does the Minister accept that people with disabilities are especially vulnerable in respect of appeals, and delays in the proper payment of benefit? Those people are extremely worried. Although the Minister has given figures in an attempt to claim that there has been some improvement, that is not the way in which many of my constituents see the position.
Does the Minister also accept that, even if the appeals situation improves—as we all hope that it will—a further round of difficulties will arise from Government proposals to means-test incapacity benefit? Those proposals are likely to add further to the complexity of the system and to the number of appeals and difficulties, and to lead to a general lack of fairness in the treatment of people with disabilities.

Angela Eagle: I welcome the hon. Gentleman to the Front Bench—I do not think that I have had the pleasure of doing so before—but I cannot agree with what he has said.
It is important to remember that, through the changes to decision-making and appeals, we have made it easier for errors to be sorted out without the need for an appeal. We hope that that will lead to the speedy resolution of many more cases, thus clearing the way for experts to examine genuine cases that require decisions. I am convinced that we shall have a much better, more sensitive way of disposing of a number of cases—to the mutual satisfaction of appellants and those who consider their appeals—right at the beginning, before cases even come to appeal.

Pensioners (Income Support Take-up)

Mr. Gordon Prentice: What steps he is taking to ensure that pensioners entitled to income support are encouraged to claim it. [88033]

The Minister of State, Department of Social Security (Mr. Stephen Timms): My hon. Friend raises an important point, to which we are giving careful consideration. Last year, we undertook some pilot projects


and research studies. We expect to receive the evaluation results from them shortly. We are watching with interest more recent partnership initiatives between the Benefits Agency and local authorities, which are showing encouraging results. We hope before long to be able to announce plans to encourage take-up among pensioners.

Mr. Prentice: When did my hon. Friend last look at a pension book? There are references to the help available, but people need 20:20 vision to read it. Why do we not simply redesign the pension book and grab pensioners' attention by saying, "1 million pensioners are entitled to claim income support, but do not do so; it could be you."? Grab their attention!

Mr. Timms: My hon. Friend makes a valuable point. Actually, it is up to 700,000 pensioners, not 1 million, but I am attracted by his attention-grabbing proposal. Another helpful initiative would be to make it easier for pensioners to claim over the telephone. We have had a good deal success with a pilot service for pensioners to make retirement pension claims over the telephone. That approach has a lot of potential as well, but I agree: it is important that we are imaginative. I want everyone who is entitled to income support—every pensioner—to receive it.

Mr. Archy Kirkwood: Does the Minister acknowledge that one of the easiest ways in which to deliver help to some of the poorest pensioners is to look at the limitation of the threshold for capital? The limits have been at those levels for some time. The Government have said that they might look at them in the near future. Has he anything to report in that regard?

Mr. Timms: The hon. Gentleman makes an important point; we made it, too, in the pensions Green Paper. We intend to introduce some proposals during the life of the current Parliament, but there is no announcement to be made today.

Ms Gisela Stuart: I am sure that the Minister would like to join me in congratulating Birmingham city council, which has just completed a pensioner awareness week, which encouraged pensioners to claim all the benefits available to them. Is any focused work being done to identify areas where, as purely statistical evidence indicates, there is particular need and high incidence of non-claiming, and to target initiatives such as the one in Birmingham at city councils throughout the country?

Mr. Timms: I have been very impressed by what I have read of the Birmingham initiative; I have asked for more information about that. I am grateful to my hon. Friend for raising that matter. There is potential in the statistical analysis that she has described. A couple of weeks ago, I visited Wolverhampton. There has been an effective take-up campaign there, run jointly by the Benefits Agency and the local authority. The local authority identified people who, from its housing benefit records, looked as though they were entitled to income support but were not receiving it. As a result of that initiative, 300 extra people in Wolverhampton are receiving the minimum income guarantee. There is much

potential here, particularly in the partnerships between local authorities and the Benefits Agency. We want to explore them fully.

Mr. David Willetts: May I press the Minister further on the interaction between means-tested assistance for pensioners and the stakeholder pension for people on low incomes? He will be aware from comments that have already been made that there is widespread concern among hon. Members on both sides of the House as to why someone should take out a stakeholder pension if all it does is reduce their entitlement to means-tested assistance. He was talking about arithmetic earlier. Let me ask him an arithmetical question. How much money do people have to have—[Interruption.] I am afraid that it is a bit trickier than the earlier question. How much money do people have to have in their stakeholder pension fund if they have no other savings, so as to secure an income that will float them off means-tested assistance?

Mr. Timms: It depends on the level of the minimum income guarantee, which will be uprated in line with earnings, but the point that the hon. Gentleman misses is that, through the state second pension or a stakeholder pension, if people contract out of the state system into a funded pension, they will be delivered on to an income in retirement that is well above the level of the minimum income guarantee. They then have full access to all the additional savings that they have made. People will be much better off in a funded pension. That is why we want every employed person in Britain to have easy access to a good-value, dependable, funded pension scheme.

Benefit Integrity Project

Mr. Bill Rammell: If he will make a statement on reform of the benefit integrity project. [88034]

The Parliamentary Under-Secretary of State for Social Security (Mr. Hugh Bayley): The benefit integrity project was terminated on 31 March 1999. We have replaced it with a periodic inquiry process into disability living allowance awards that is both fairer and more sensitive to the needs of individual disabled people.

Mr. Rammell: I thank the Minister for that response. Does he agree that a crucial part of the changes has been the move from a faceless, cost-cutting bureaucracy to a situation in which a claimant is, rightly, able to speak over the telephone to the person who is making the decision on that claimant's benefit eligibility? Will the Minister also reassure the House that the Government will continue to invest in training for Benefits Agency staff, particularly in disability awareness, to ensure that the changes are successful?

Mr. Bayley: Yes, I can give my hon. Friend that assurance. The benefit integrity project was introduced by our predecessors, before the general election, as a cost-cutting exercise, and was, therefore, seen as unfair by disabled people. The project considered only cases for reduction in benefit, not cases in which people were being paid too little benefit. Our periodic review, however, will do both: it will reduce benefits when people's circumstances change and they no longer qualify for higher rates, but also increase benefits for those whose


needs increase. That is what is different about the changes, and it is why our new review process will be much fairer.

Mr. John Bercow: According to what precise criteria will discretion be used to decide whether reviewed benefits should be backdated or not backdated?

Mr. Bayley: The rules on backdating are the same as those that applied under the benefit integrity project: one does not backdate benefit to the date of either the inquiry letter or the inquiry visit.

Child Support Agency

Sir David Madel: What recent discussions he has had with the chief executive of the Child Support Agency on reform of the agency's procedures; and if he will make a statement. [88037]

The Secretary of State for Social Security (Mr. Alistair Darling): I meet regularly with the chief executive of the Child Support Agency, and, of course, discuss the way in which the agency works. The hon. Gentleman will be aware that, last week, I made a statement to the House in which I described a number of improvements that we propose to make.

Sir David Madel: When mistakes have been made by the Child Support Agency on money due for maintenance and a deduction of earnings order is imminent, whose job is it to get the mistake corrected quickly? If the job is to be ours as hon. Members, surely we should be given power to put a stop on deduction of earnings orders while the matter is being re-examined. That is a perfectly reasonable request, and a reasonable Government would grant us it.

Mr. Darling: The hon. Gentleman has been in the House long enough to remember the time when all hon. Members had a power virtually to stop immigration cases, whereas—certainly in my experience—we were never in possession of sufficient information to be able to reach an informed judgment on those matters. I do not really think that giving Members of Parliament power to intervene in the administrative process—perhaps on limited evidence, and sometimes on the basis of limited partial evidence, from one view only—would be a particularly satisfactory way of doing things.
What I do think is necessary is the root-and-branch overhaul of administration of the CSA, which I announced last week, and to get away from the current situation, in which the very complexity of the formula makes it very likely that there will be mistakes. In future, under the new simpler formula that I announced last week—in which only three pieces of information will be needed to calculate how much is due; the tables showing how much will be due was published in the White Paper—the incidence of mistakes is likely to be much lower.

Mr. Gerry Sutcliffe: May I tell the Secretary of State that I do not want the powers described by the hon. Member for South-West Bedfordshire (Sir D. Madel)?
We have had some negative press after the excellent statement made last week by my right hon. Friend on the White Paper proposals, as many people have been confused about interim administration arrangements until the legislation is changed. What can he do—perhaps working with agencies and local authorities—to get across the White Paper's message on how the changes will affect people in the intervening period, until new legislation has been introduced?

Mr. Darling: My hon. Friend makes a good point. In the next three years, we shall be investing £28 million in the Child Support Agency. We are strengthening the agency's senior management, and bringing in, as agencies, people with far more experience from other branches of the Department of Social Security, to tighten up the CSA's middle management and to get decision-making right in the first place.
Additionally, we are placing far more attention on complaint resolution. More than 600 staff will be allocated to deal with interviews, face to face with those who have complaints or do not understand how a calculation has been made. Moreover, at the earliest possible opportunity, we shall introduce penalties for late payments, and make it an offence to lie to the agency or not to co-operate with it.
I believe that all those changes will mean that the improvement that has been made in the past year or so will get better and better. I am sorry to say that until we get legislative approval to make the formula simpler, the agency will always have difficulties. It will never be popular. We can make some valuable alterations in the mean time, but a new formula is vital to ensure the fundamental changes that we all want.

Mr. Eric Pickles: The right hon. Gentleman suggested last week that it would be helpful to have cross-party support for reform of the Child Support Agency. Does he realise that the undertakings given across the Dispatch Box will bear materially on whether there is such co-operation? In his statement last week he dismissed our worries about the confidentiality of Inland Revenue files but, on 27 April, the Under-Secretary, the hon. Member for City of York (Mr. Bayley), assured me that the files would be used only as a last resort, repeating that assurance six times in a relatively short debate. Were the Opposition duped by those undertakings? Has the policy changed, or does the Secretary of State stand by those undertakings?

Mr. Darling: I find it interesting that when we announce reforms that will help 1 million children who do not get help now, the hon. Gentleman is bothered only about the minority of fathers who fiddle the system and conceal their true financial state from their children. Let me make the position clear. We shall ensure that people have every opportunity to tell us how much money they have so that we can calculate how much they should be paying their children. Of course it will be only as a last resort, if they insist on misleading us or lying to us, that we shall go to the Inland Revenue and ask what that individual has said in their tax returns. It is high time that the Conservatives started addressing the real problem of 1 million children losing out because of the mess that we inherited at the Child Support Agency, which they set up.

Young Carers

Mr. David Kidney: How his Department (a) identifies and (b) helps young carers. [88038]

The Parliamentary Under-Secretary of State for Social Security (Mr. Hugh Bayley): I know that my hon. Friend has a close interest in children's welfare. He will be aware that social security benefits are not available to children under 16 in their own right, but if, unusually, we received a claim from someone under 16 who was clearly a carer and requested help, we would give appropriate advice, such as suggesting that the parent should receive benefits advice or that the family should contact social services.

Mr. Kidney: I thank my hon. Friend for that answer. Does he agree that some carers as young as 12 and 13 bear the heavy responsibility of caring for adults with disabilities? The national carers strategy challenges us all to identify and provide help and support to such youngsters. Although the main aim of that challenge is education and health services, there is a role for the Department of Social Security and the Benefits Agency. One inexpensive way of alerting all claimants for invalid care allowance of the possible availability of local support is shown by the south Staffordshire carers support project, which has produced an excellent leaflet called "Young Carers Need You to Listen". Will my hon. Friend look again at the rules for entitlement to invalid care allowance, which currently exclude those who stay in full-time education? Will personal advisers for 16 and 17-year-olds be sensitive to the needs of young carers?

Mr. Bayley: I thank my hon. Friend for that interesting question. I am sure that he joins me in paying tribute to my hon. Friend the Member for Croydon, North (Mr. Wicks), whose Carers (Recognition and Services) Bill a few years ago contained proposals, opposed by the then Conservative Government, to ensure that the needs of young carers as well as adult carers were taken into account. That laid the groundwork. I have considered the issue that my hon. Friend has raised. It would not be appropriate to pay invalid care allowance to those under 18, because the benefit replaces earnings for those who are unable to work, although there are circumstances in which a full-time carer under 18 who is not in full-time education would be able to claim income support with a carers premium, which answers my hon. Friend's point.

Mrs. Virginia Bottomley: Many people welcomed the words of the carers strategy. However, I ask the Minister to visit the home counties. He would be welcomed in Surrey, where he would find that the social services, education and health settlements meant that there was no prospect of expanding services—it was a question of retreating. Perhaps the most irresponsible step is to mouth the words, but not to make the means available to deliver the objectives.

Mr. Bayley: Many things have changed since the legislation was placed on the statute book and since the publication of the carers strategy. I have visited a number of carers projects in different parts of the country, and they welcome the fact that, as part of the strategy, an additional £140 million has been made available, principally to provide breaks for carers.

ONE Service

Mr. John Healey: What reduction in incomplete or incorrect first-time benefit claims he estimates will result from the introduction of the ONE service. [88039]

The Parliamentary Under-Secretary of State for Social Security (Angela Eagle): The first pilot offices offering the ONE service opened for business on 28 June. One of the many advantages of the new service is that advisers will be able to help clients to complete their claim forms during the initial work-focused interview. We therefore anticipate that there will be fewer incomplete or incorrect first-time benefit claims.

Mr. Healey: Will my hon. Friend acknowledge that one of the understated strengths of the concept of the ONE service is the opportunity to get claims complete and correct from day one? Will she therefore consider making that objective one of the yardsticks by which the pilots are judged?

Angela Eagle: My hon. Friend is absolutely right. We believe that there are large administrative gains to be made from preventing the duplication of work and the chasing of incorrect forms, and from ensuring that people can get their benefit payments quickly. They can then concentrate more effectively on how to get off benefit and back into work. I can confirm that that is one of the things that we will be measuring in the monitoring and implementation process, and we will be expecting significant beneficial effects.

Public Service Delivery

Mrs. Joan Humble: What progress his Department is making with integrating the delivery of its services to the public with services offered by other parts of Government. [88040]

The Parliamentary Under-Secretary of State for Social Security (Angela Eagle): This Department is making substantial progress in planning the integration of its services to customers through a modern service programme which will deliver business change and enhance information technology support. Our primary focus at the moment is the ONE project pilots, which commenced on 28 June, in which we are ensuring the delivery of work-focused benefit services and promoting partnership, working with the Benefits Agency, the Employment Service and local authorities.

Mrs. Humble: I am sure that my hon. Friend is aware of how confusing and time consuming it is for many disabled people in particular to try to access different Government Departments and local authority departments. What plans does my hon. Friend have to ensure that areas such as Blackpool, which are not part of the pilot for the ONE service, have a single gateway to enable disabled people to access all the services that they need?

Angela Eagle: We are hoping to learn from the ONE pilots how we can offer the service throughout the country. We are doing other things to try to integrate interdepartmental working, and the work of local authorities and the agencies of Departments. That includes


the presence in all 349 local authorities of remote access terminals which allow people to look at the information we have to ensure that they can process housing benefit correctly. I assure my hon. Friend that the benefits of integration will be coming to all areas of the country as soon as we can ensure that that can be done practically.

Dr. Julian Lewis: As the Government are doing such a good job in integrating the services offered by different Departments, will the Minister have a word with the Secretary of State for Health and advise him that by focusing on the numbers on waiting lists, he is making waiting times longer, and thus adding tremendously to the social security bill?

Angela Eagle: The hon. Gentleman should know that both waiting times and waiting lists are falling.

Disabled People (New Deal)

16. Dr. Brian Iddon: What progress his Department has made in implementing the new deal for the disabled. [88041]

The Parliamentary Under-Secretary of State for Social Security (Mr. Hugh Bayley): Together with my right hon. Friend the Secretary of State for Education and Employment, we have introduced the new deal for disabled people. We are also piloting a personal adviser service under the new deal in 12 areas, including my hon. Friend's constituency. I know that he has visited the scheme and has taken a close interest in its work.

Dr. Iddon: Not only has the pilot scheme in Bolton employed four people previously on incapacity benefit but so far, in the first eight months, it has seen 565 people, half of whom have been assessed and 88 of whom have been put into an occupation. There are excellent partnerships running; with Bolton local authority, for example, with whom the scheme has won European structural fund money for 200 workplaces. Will my hon. Friend join me in congratulating Peter Jones and his staff on the excellent start that they have made?

Mr. Bayley: I do indeed congratulate Peter Jones and his staff. I have visited the project and I know that it is working extremely well. It shows the difference between our approach to welfare benefits and that of the Conservatives. We seek to get people off benefits and back into work.

Northern Ireland

Madam Speaker: The right hon. Member for Bridgwater (Mr. King) raised an important point of order at 2.30 pm today about the joint statement by the British and Irish Governments, which should have been available in the Vote Office at that time. I understand that it was available in Northern Ireland at 9 pm on Friday. There is no reason whatever why it should not have been in our Vote Office early this morning. I hope that those who are responsible for distribution will improve efficiency.

The Prime Minister: With permission, Madam Speaker, I should like to make a statement on last week's talks on Northern Ireland.
Last Friday, I proposed a way forward for Northern Ireland. The starting point was the Good Friday agreement, which set out an agreed basis for a peace settlement in Northern Ireland. It offered Unionists what they have sought for the past 70 years: the principle of consent—that is, no change to the status of Northern Ireland without the agreement of the majority of its population; changes to the Irish constitution, with Dublin dropping its legal claim to the North; and devolution of powers to Northern Ireland, with an elected Assembly, an Executive and other institutions.
For the nationalists and republicans, the Good Friday agreement offers equality, justice, and the normalisation of Northern Ireland society; for the first time since partition, the ability to share power and responsibility and not have their electoral mandate set at naught; a range of new institutions, including north-south bodies; and, over time, as the security situation improves, demilitarisation.
Above all, the Good Friday agreement offered all the people of Northern Ireland the prospects of permanent peace and an end to violence. I believe that it is still the only true way forward for Northern Ireland.
Of course, difficulties remain. There is still violence, much of it recently by loyalists opposed to the Good Friday agreement, and there is still conflict and bitterness, as we can see in Portadown, where I will continue to work for a settlement of the Drumcree issue; but life in Northern Ireland has improved immeasurably since the Good Friday agreement. Normality has returned to most parts of the Province.
Whatever their disagreements, the two sides now talk to one another regularly, but one vital issue is unresolved: how to secure the decommissioning of paramilitary weapons. The Good Friday agreement required all parties to use their best endeavours to secure decommissioning.
On 25 June, the Taoiseach and I secured the commitment of all the signatories to the Good Friday agreement to three principles on which the rest of our work was then based: that an inclusive Executive should be formed, exercising devolved powers; that all paramilitary arms should be decommissioned by May 2000; and that decommissioning should be carried out in a manner determined by the International Commission on Decommissioning under General John de Chastelain.
Both sides need certainty. Unionists want certainty that decommissioning will happen, and a guarantee that, if it does not, they will not be left in an Executive with those who refuse to make it happen. Republicans want the

certainty that Unionists are serious about participating in a genuinely inclusive Government. Our agreement last Friday, in my view, provides both.
In more detail, the proposal is as follows. Northern Ireland Ministers would be nominated by the parties, using the d'Hondt procedure, on 15 July. The devolution order would be laid before Parliament on the following day, and powers transferred on 18 July.
The de Chastelain commission would require a start to the process of decommissioning. The general has already said that he expects this to be within
literally a couple of days".
That process of decommissioning begins when a paramilitary group
makes an unambiguous commitment that decommissioning will be completed by 22 May 2000 and commences detailed discussions of actual modalities (amounts, types, location, timing) with the Commission through an authorised representative.
So there would have to be definitive statement of intent, certified by de Chastelain literally within days. If that does not happen, and de Chastelain certifies a breach of this process, at that point the Executive is unwound. So we shall know within days whether decommissioning is to happen or not.
The commission then sets a further time limit, within which there is to be a start to actual decommissioning of weapons. The general has said that he would expect that to be within a few weeks. Again, should the actual decommissioning not come as de Chastelain has laid down according to the Good Friday agreement, then the failsafe kicks in. De Chastelain is due to make reports on progress on actual decommissioning in September, October and December and in May 2000, by which time it is to be complete. That is all entirely in line with the Good Friday agreement. Under it, parties are expected to use their best efforts to secure decommissioning. Last Friday's agreement is effectively the basis for how that will be judged.
Should default occur, the institutions are suspended automatically while we find a way forward. We are then, in effect, back to where we are now, but with these two vital differences: the blame for default is clear, and the parties are then free to move on in an Executive without the defaulting party. I cannot make the other parties agree to a new Executive, or force anyone to sit in a Government with anyone else, but I can make sure that Sinn Fein does not continue in an Executive with the Ulster Unionists should there be a default of the de Chastelain process. All that will be set out in legislation.
In my judgment, it is a far better deal than was on offer at Hillsborough. That offered a token act of decommissioning, dependent on reciprocal steps by the British and Irish, with no clear framework for completing the decommissioning process by May 2000. This, by contrast, provides a guarantee of a complete process of decommissioning, plus a failsafe that fully protects the interests of Unionists. There is a challenge to all parties: to Unionists to agree to a power-sharing Executive; to republicans not just to give up violence but to decommission weapons in accordance with the undertakings set out in the Good Friday agreement; and to nationalist opinion to support parties implementing this agreement and not to support those who refuse to do so.
If last Friday's agreement is put through, we will know in days whether the paramilitaries are serious about decommissioning their weapons. After 30 years


of bloodshed, grief-stricken families and terror-torn communities, is it not worth waiting 30 days to see whether the undertakings are fulfilled? If they are, peace—real peace—can come. If they are not, we will know that the challenge of true democracy was too much for those linked to paramilitary groups. Either way, we will know. So I say to people: discuss the detail, debate it and engage; but do not throw away the best chance for peace that we will have in this generation.

Mr. William Hague: We are grateful to the Prime Minister for his statement. The whole House will appreciate his efforts and those of many others to resolve those very difficult problems.
The Good Friday agreement continues to have the full and unequivocal support of the Opposition. It offers the prize of peace and an end to the horror and suffering of the past 30 years. We are committed to making it work and to seeing it implemented in full.
Does the Prime Minister agree that the decommissioning of all illegally held arms and explosives is an absolutely essential part of that process? It was supposed to begin almost immediately and to be completed by May 2000, but, so far, it has not happened. Will he make it clear that the obstacle to progress has been not the right hon. Member for Upper Bann (Mr. Trimble) and his party, who have done all that was required under the agreement, but the terrorists—republican and loyalist—and their political representatives, who have failed to get rid of their arms?
Does the Prime Minister agree that, against that background, the anxieties of the Unionists are wholly understandable? They are being asked to admit, as Government Ministers in a part of the United Kingdom, representatives of terrorist groups that remain fully armed and capable of carrying out violence on a massive scale. They are being asked to take on trust claims by Sinn Fein, which does not even profess to speak for the IRA, that, once it is in government, disarmament might take place.
In assessing these proposals, we have two major areas of concern that give rise to two sets of questions. First, it is clear that there is still no cast-iron guarantee that the IRA will commence decommissioning its weapons. One of its leaders was quoted as saying that there was no guarantee of decommissioning. Will the Prime Minister confirm that, in the emergency legislation—to which the House will give speedy passage—there will be a precise, transparent timetable for decommissioning?
Secondly, on the failsafe guarantee, Friday's document states that, without decommissioning, the Government
will suspend the operation of the institutions set up by the Agreement.
Does the Prime Minister agree that that could punish democratic politicians for the failure of paramilitaries to decommission? Will he therefore expand on his comments on the radio this morning, when he said that, if the IRA failed to state its intention to decommission within days,
it's open to us all to formulate a new way forward without Sinn Fein"?
Will the Prime Minister confirm that, in those circumstances, he would seek the suspension from the Assembly of Sinn Fein and any loyalist paramilitary groups? Will he further confirm that the Secretary of State

would use the power given her in the Good Friday agreement to invite the Assembly to form a new Executive without Sinn Fein? That is not to say simply that it could do so, but that the Secretary of State would use her power to invite it to do so—that is the difference in what I am asking.
Will the Prime Minister confirm also that, in those circumstances, he would, without hesitation, put on hold any reform of the RUC and criminal justice system and stop the early release of terrorist prisoners?
We are now at a stage where the two Governments—British and Irish—and the democratic parties, nationalist and Unionist, have jumped every hurdle. Let us make no mistake: the stumbling block is the failure of paramilitaries, loyalist and republican, to decommission weapons. Does the Prime Minister agree that it is now up to those paramilitaries to make the process work, and, if they fail to do so, we should set the maximum penalties for them?

The Prime Minister: I thank the right hon. Gentleman for his support. The bipartisan support in the whole process has been extremely important in taking it forward, and I hope that it continues, because it will be difficult to make progress without it.
The right hon. Gentleman said that decommissioning has not happened, but the Executive has not yet been established, and the decommissioning issue is precisely what held it up. People point out that we said that representatives could not sit in the Executive until we were sure that they had given up violence for good—that is what I said during the referendum campaign, and that is, of course, precisely why they are not sitting in the Executive. We need to deal with that issue, which is why we have tried to reach agreement in the way that we have.
I entirely agree—it is important to emphasise this point—that loyalist paramilitaries have to decommission too. There can be no question of saying that it is an imposition only on republican paramilitaries; it is in respect of all paramilitary groups in Northern Ireland.
The right hon. Gentleman said that there were understandable anxieties and that people would be expected to admit to an Executive people who are fully armed and to take their word on trust. It is important to make two points.
First, the benefit of the agreement that we have is that people would not be able to carry on sitting in an Executive fully armed. They would have to be agreeing to a process of decommissioning that got rid of all the weapons by the agreed date, which is May 2000. The problem with the Hillsborough declaration was that it asked for one token act of decommissioning, and no guaranteed process after that.
Secondly, people say that we must take Sinn Fein on trust. The whole agreement of last Friday is based on the simple principle that neither side will take the other on trust. We may as well face up to that; that trust does not exist, for perfectly understandable reasons. Therefore, the purpose of the agreement is to build in guarantees, certainty. So, there is the certainty for the republicans that the inclusive Executive will be set up, and the certainty for Unionists that they will not be expected to carry on sitting in the Executive with those who are not giving up their weapons. We have tried to build in certainty, not trust.
The right hon. Gentleman asked us to say that, if there were to be a default by Sinn Fein, we would invite the other parties to go forward without it. I say categorically that we would certainly be doing that—as long as people understand that I cannot force parties to form a Government together. I cannot force some of the parties now to get into government with the other parties, but I can certainly provide the basis for a way forward and say that the party that is in default in the agreement should be the one that is punished. There is no doubt about that; we can make that very clear.
The release of prisoners is governed by the legislation that is set out, and a range of factors are to be taken into account, including the issues about which we are talking. I make the following point about maximum penalties. At the present time, we simply do not know whether people will decommission. My point is, whatever they say, whatever they have said to us and whatever indications they have given, I understand perfectly well why people will not accept undertakings, words, statements or any of the rest of it. If we do not put this agreement to the test and find out literally within days whether decommissioning will happen, we will never know. The republicans will say, "We might have, if we had been given the chance," and the Unionists will be left without the knowledge of whether the republicans ever would have done so.
I believe one thing absolutely and sincerely: we will never get this Executive to work unless the obligation to decommission is accepted and carried through. In the legislation, we must build in proper failsafes and guarantees so that we give this thing a chance to work, but do not leave the Unionists or, indeed, any other democrats, in an Executive in which people keep a private army and intend to use it.

Mr. Paddy Ashdown: I congratulate the Prime Minister, the Taoiseach and all others involved on retrieving hope from what looked like pretty irretrievable despair at the end of last week. Does not the Good Friday agreement remain the only blueprint for peace in Ireland, and the Belfast agreement the only route to it? With that in mind, is it not important that all sides, perhaps especially the Unionists, consider this agreement in detail rather than peremptorily dismissing it, as that would damage not only peace in Northern Ireland but very possibly the Unionists' cause as well? Does the Prime Minister agree, however, that he has some work to do to reassure the Unionist community about it? Will he therefore provide a few more details on the following three areas?
First, will the Prime Minister give more details about the timetable for decommissioning and the role of General de Chastelain? Secondly, will he be a little more precise about how long the Unionists will be asked to sit in an Executive before the IRA gives dependable and concrete assurances by way of action on its commitment to decommission before 2000? Lastly, will he assure us that the failsafe will not bring down the whole devolutionary structure and that, if one party defaults—whether IRA or any other terrorists—the others will not only be able to go ahead but will do so with the Government's help, support and good wishes?

The Prime Minister: First, it is important again to point out that there will be no decommissioning if we do

not find an agreement to move this issue forward. The alternative to last Friday's agreement is not faster, quicker decommissioning, but no decommissioning. Secondly, the timetable for decommissioning is laid down by General de Chastelain, but he has already given indications of the timetable that he would expect and when the reports are to be delivered—the first, as I said, in September and subsequently right up to May 2000. Incidentally, if he wishes, he can lay down an even quicker timetable for decommissioning. Anybody who has had anything to do with General de Chastelain realises that he is, rightly, respected by all sides, both as independent and as extremely concerned to ensure that decommissioning is actually delivered.
It is as well that the right hon. Gentleman raised the third point; it is not that Sinn Fein must provide a statement to the de Chastelain commission within days of the formation of the Executive, but that the paramilitary group itself—the IRA—must do so, as must the other, loyalist, groups. Most people would recognise that as a pretty significant event. We shall know that within days, and then, some weeks down the line, we shall know whether actual decommissioning is occurring. During that time—literally the next few weeks—we shall be able to see whether those undertakings are honoured.
Finally, in relation to the failsafe, yes it is extremely important to recognise that, in order to give the automatic guarantee, we have to suspend the institutions, but, of course, we shall then find a way forward that ensures that the punishment is visited on the defaulting party, whoever that defaulting party may be. That is obvious; it is right and just.

Mr. David Trimble: I echo the words of the Leader of the Opposition in thanking the Prime Minister and, indeed, Taoiseach Ahern for the amount of time that they have devoted to this issue, and for spending all of last week in Belfast. It is appreciated and, as the Prime Minister is aware, it is also appreciated by my Assembly colleagues—even if we differ slightly as to the outcome of matters.
The Prime Minister knows that my Assembly colleagues and I want to see devolution, and that we want to see actual decommissioning occur. However, he also knows that, in asking us to include Sinn Fein in an Executive in advance of decommissioning, he asks us to sacrifice the democratic principle to expediency. He is asking us to take a gamble with an ineffective and unfair safety net. That point has already been made. The question is: why close all the institutions? In effect, why give a veto to the paramilitaries? That would mean that, if the IRA does not like the results of, say, the Patten commission on policing, it could close things down, simply by delaying decommissioning. It also gives other paramilitaries a veto.
What will happen if the UDA, the UVF, the LVF or the INLA decide that they will stop decommissioning in order to destroy all the institutions of the agreements? That is not an effective remedy. The remedy should be directed towards the parties in default. With regard to the other paramilitaries, closing the Executive is no penalty; the only possible penalty has to do with prisoners. That has to be looked at again.
Finally, does the Prime Minister recall that, at the beginning of last week, he was seeking a series of declarations—especially one from Sinn Fein that the war


was finished, over, done with and gone? He also wanted from Sinn Fein a declaration that it will succeed in persuading those with arms to decommission. He was also seeking from the IRA a statement that, in effect, accepted the Sinn Fein statement. What happened to those declarations?

The Prime Minister: I thank the right hon. Gentleman for his kind words about the time that we spent in Belfast. I do not regret any of the time that I spend in Belfast—occasionally, I wish it were slightly more productive. I also thank him for the constructive way in which he has engaged in the negotiations. I entirely understand the anxieties that he rightly represents.
If the issue is the democratic principle that we cannot sit in government with people who have a private army in reserve, every democrat would agree with that. The reason why I believe this process to be superior to Hillsborough is that, in the Hillsborough declaration, we could have had a token act of decommissioning, but we could still have been sitting in an Executive with people who had a private army. After all, if they get rid of one load of weapons, that is not the same as getting rid of everything. It is, therefore, better to have a process of complete decommissioning; I think that the right hon. Gentleman would accept that. The issue is simply how it starts. I hope that I have provided some assurance as to that by saying that the process of decommissioning, which begins with the explicit statement on behalf of the paramilitary organisation, has to start within days, otherwise, we go back immediately and rewind the position.
The second point that the right hon. Gentleman makes is about the ineffective and unfair safety net. Surely that is precisely what we should try to discuss in the coming days, because there will have to be legislation, which will be properly scrutinised, and the points that he is making—perfectly fairly—need to be taken into account. For example, he asks why groups that have not decommissioned should have a veto over the process. In a sense, one could say that, by not decommissioning now, they have a veto over the process, but I think that our way of dealing with it prevents them from having a veto because the suspension is not the only thing that happens. We then go into a review, and then we can invite the parties to take a different way forward. So we do not—and should not—end up in a situation where the defaulting party manages to bring punishment upon everyone else and no punishment upon itself. I agree with that. Again, we are happy to look at a way that we can deal with that objection.
In respect also of the loyalists, I think that it is very important to realise that, although the loyalists will not be part of the Executive, none the less they have the obligation to decommission. The entire range of factors that must be taken into account are very clearly set out in the legislation on prisoners, and I would refer back to them in detail.
The right hon. Gentleman also asked whether it would be right to end up closing all the institutions. There was an implication there—this may be a misunderstanding—that all those institutions would come to an end and never be revived. That would not be my view as to the way forward. There must be a suspension—otherwise,

the Unionists are left on the Executive with those who have refused to decommission or are in breach of their agreement—but then we must find a way forward that ensures that the institutions do work again, but work in a way that is consistent with the democratic mandate of the Ulster Unionist party and the other parties, ensuring that those parties in default pay the price for being in default.
Finally, in relation to the declarations by Sinn Fein and the IRA, I have set out where the IRA would have to make its statement, but I want to make this point very, very clear indeed. We could have decided to go with a process that depended on words. We have decided not to do that. This process depends on actual decommissioning happening—actions. If there are not actions, the failsafe kicks in immediately. So I am not asking us to be in a situation where we are expecting democrats to sit in the Executive with organisations linked to paramilitary groups, which then can simply sit there, keeping their weapons, no one being able to do anything about it. We are not saying that words are the protection. There has to be actual decommissioning. If there is not actual decommissioning, the failsafe kicks in, and then we can find a different, and better, way forward.

Mr. Kevin McNamara: I congratulate my right hon. Friend and the Taoiseach on the tenacity of purpose that they showed over the past week and their determination to try to bring to an end more than 30 years of mayhem, death and destruction. I also pay tribute to my right hon. Friend the Secretary of State, who has been most unfairly pilloried during the past few days. She has the admiration and support of every Labour Member.
Can my right hon. Friend confirm that any Executive must have the support of both sides of the community; that on each side of the community more than one party must agree with what is going on; and that, therefore, it does not necessarily follow that there could be an Executive without Sinn Fein?
Secondly, can my right hon. Friend confirm that, for the first time, he has got from Sinn Fein an understanding that he has regarded as being one of the greatest movements of position in politics in Ireland for many, many years? That must be put to the test, and the way that he has suggested puts it to the test. Anyone who would seek to throw that away in a fit of pique or because they wanted every t crossed and every i dotted would, if they persisted in that, be subject to a great deal of deserved criticism from all the peoples in these islands.

The Prime Minister: First, I think that I know better than anyone else what my right hon. Friend has had to go through over the past two years in doing her job. I know of the difficulties that it has caused her from time to time. I can assure the House that I am second to none in my admiration for the way in which she has done her job.
Secondly, my hon. Friend the Member for Hull, North (Mr. McNamara) made a very correct point about both sides of the community. We should never forget that more parties than Sinn Fein and the Ulster Unionists are involved in these matters. There are other political parties with a mandate—most notably there is the SDLP, but there are others which also need to be taken account of.
Thirdly, as for Sinn Fein and the statements that it has made, I believe that it is prepared to make this historic shift. However, I do not believe that the Unionists should


have to rely upon that. That is why I think that it is right to put it to the test. The detail obviously matters as well, and I hope that it is properly scrutinised. I only ask people to let us have a discussion about the detail to see whether the justifiable anxieties and concerns can be allayed.

Mr. John Major: It is possible that we may be near the conclusion of a very long trail. I hope that everyone will look clearly at both the opportunities and the difficulties that lie immediately ahead of us.
The Prime Minister and the party leaders have done extraordinarily well to expose the questions that were always going to be there at the end of the day—will the IRA decommission and can the word of Sinn Fein bind the IRA and its future actions? If the answer to those questions is yes, I think that peace is at hand and that democracy has a triumph. If the answers are no, the Prime Minister is surely right to say that Sinn Fein cannot sit on the power-sharing Executive. In those circumstances, I would seek some clarification.
The Prime Minister said a moment ago that the Executive and perhaps the Assembly would be suspended. Will he confirm that that would happen very briefly? Will the right hon. Gentleman tell the House whether the Irish Government agree with that policy, and with the Executive and the Assembly then continuing without Sinn Fein? Will he tell the House also whether he has discussed or will discuss with all the political parties, including most importantly for this purpose the Catholic majority party, the SDLP, whether they would remain in an Executive and an Assembly were Sinn Fein to have been removed from it for not decommissioning its arms? That is a crucial point.
As the Prime Minister will know, the fear in Ulster is very straightforward. It is that Sinn Fein will enter the Executive, the IRA will not then disarm, Sinn Fein will assert that it is separate from the IRA, and that there will then be pressure for it to remain on the Executive for fear that its removal would be the trigger for a fresh bout of violence. That is the fear of many people in Ulster. Upon that, I found the Prime Minister's statement of a few moments ago to be encouraging. However, will he be absolutely clear that he would not permit that to happen and that the legislation that will come before the House will ensure by its provisions that that could not happen? If that were to be the position, I think that many of the fears in the House and beyond would be removed.
Finally, does the Prime Minister agree that political pressure from London and Dublin to try to ensure that we can finally produce a peace at the end of a long process is entirely justified, but that it should focus on the paramilitaries and not upon the democratic political parties?

The Prime Minister: First, I thank the right hon. Gentleman for his work; he really began this process. I know that there is a great deal of gratitude for all of the work that he did on this issue while Prime Minister. I think that I can confirm all of the points that he has raised. It is the position of both Governments that it is open to the parties to continue in an Executive without Sinn Fein. I simply repeat that I cannot force people to sit on the Executive together, but it is open to them to do so. The SDLP must make its position clear, but I understand that it is prepared to move forward without Sinn Fein

should the circumstances be such that Sinn Fein is clearly the defaulting party. However, the SDLP must make its own statement on that.
I entirely understand the right hon. Gentleman's point about the fear in Ulster. He will know that people would not want the situation to be left in the hands of the two Governments. That is because they know that the two Governments will be subject to pressures. They would know and would fear—I think that this would be the fear of Unionists—that the two Governments would be under such pressure to keep the process going on any basis that even if Sinn Fein defaulted, some way would be found of ignoring the default. That is why I have suggested that the decommissioning process is in the hands of the independent commission. The commission will lay down the timetable for decommissioning and certify every step in the way. There will be an automatic kicking-in of the failsafe should the commission not certificate that progress is being made or should it certificate that progress is not being made. In other words, there is no possibility of the Unionists being made to sit in the Executive with Sinn Fein, if Sinn Fein is in breach of the undertakings that it gave.
The purpose of making sure that the initial statement, within days of devolution, is on behalf of the paramilitary organisation is to get rid of the notion, once and for all, that a statement by one of the political parties linked to those groups is enough. It is not. The statement must be from the paramilitary organisation, it must be, in the words that we have set out, "clear and unambiguous" in the intention to decommission, and it must be combined with the appointment of a representative to ensure that that happens. We are guarded against the very point that the right hon. Gentleman rightly says we should be guarded against.
It is worth quoting the conclusion of an editorial today in the Belfast Telegraph, which is ready to be pretty sceptical about most of the deals and agreements. It states:
On balance therefore, we believe that the deal is worth a try, worth further examination and refinement but certainly should not be subject to rejection out of hand.
That is what the Belfast Telegraph has written today, and I ask all parties to try to ensure that that is the case.

Mr. David Winnick: As the former Prime Minister, the right hon. Member for Huntingdon (Mr. Major), who started the peace process knows full well, during the 18 years that we were in opposition, we supported the then Government at every stage over Northern Ireland, and we did so because it was in the national interest. Will my right hon. Friend consider letting the Ulster Unionists know, when he next meets them, that the large silent majority in Britain has always supported the wish of most people in Northern Ireland to remain part of the United Kingdom, but that they undoubtedly support the Good Friday agreement?
If there is slightest doubt about the wishes of the vast majority of British people with regard to the Good Friday agreement, could there be an opportunity to allow people on the mainland to vote, as people voted in Northern Ireland and in the Irish Republic? If there were such a vote, it would be even larger than in those two places for an agreement that leads to the possibility of a permanent peace in Northern Ireland.

The Prime Minister: I thank my hon. Friend for his support. The Good Friday agreement was agreed in


referendums north and south. I believe that with the certainty that we now provide about the link between the Executive and the decommissioning process, support for the agreement should be reinvigorated.

Mr. Tom King: Is the Prime Minister aware that his comment that there is a total lack of trust between different sides can be readily endorsed? Does he recognise that, because of that lack of trust, it is difficult to have much confidence in decommissioning, certainly if one reads the comments of General de Chastelain? None the less, the House would accept that the Prime Minister may have sources of information and further knowledge that he cannot share with the House which give him confidence that there will be the seismic shift that he described, but which is not apparent in any of the documents currently available to us.
I still have one reservation. The Prime Minister speaks of the failsafe kicking-in, but it seems to me that there is no failsafe until 20 May, which is the moment at which it would become clear that decommissioning had not taken place. Unionists therefore face the prospect of sitting in an Executive during that period.
Against that background, the last words of the Belfast Telegraph editorial that the Prime Minister quoted, about the need for further consideration and refinement, not outright rejection—I strongly agree with that—and the reassurance for Unionists to which the leader of the Liberal party referred, are extremely significant.
Does the Prime Minister agree that it is sad that no member of the SDLP is to be seen in the House today? I saw the television broadcast which implied that there were only two political parties in Northern Ireland, in the shape of the Unionists and Sinn Fein, but I believe that the role of the SDLP as the majority non-violent nationalist party is very important.

The Prime Minister: I agree with the point that the right hon. Gentleman makes.
In relation to the detail, I should explain that the failsafe device kicks in at several stages up to May 2000. That is the benefit of the agreement that we have. Under the Good Friday agreement, there was no failsafe up until May 2000. Now we have agreed that, within a few days, the decommissioning process has to start with the statement of intent. After that, there will be the first report on actual decommissioning. Then there will be further reports all the way through to May 2000.
The Unionists will not be left in the Executive with Sinn Fein and the IRA doing nothing about weapons. The decommissioning process will get under way virtually straight away and has to be followed through all the way to May 2000. That is a far tighter timetable and agreement than we had before and they are in the hands of de Chastelain. As I said in answer to questions earlier, people would not accept it if they were in the hands of the two Governments, but most people who have talked to General de Chastelain know that he is deadly serious about decommissioning happening. If it does not happen, he will not certify it as happening.
The right hon. Member for Bridgwater (Mr. King) rightly said that General de Chastelain makes it clear in his report that he is not yet fully satisfied that

decommissioning will happen. Correct. Never mind private assurances that are given—I do not take the private assurances that are given either. The only thing that will do for me is decommissioning actually happening. That is why we have set out this process, but if we do not test it out, we will never know whether decommissioning is to be delivered or not.
Perhaps I should make this point as well: people will say, "Why don't you get the decommissioning first and then the Executive?" Under the Good Friday agreement that is put the other way round. It is not a precondition to establishing the Executive that there should be decommissioning, but it is an obligation. We have to marry those two obligations, which is why we have attempted to do it in the way that I have described.
Let us be clear: we want republicans to succeed. If they can bring about decommissioning that will be a huge step forward for everyone. To be fair to them, they have always made it clear to me that they can achieve it if it is in line with the Good Friday agreement, but not if it is a departure from it. That is why they rejected Hillsborough, even though in many ways it offered an easier deal for them.

Mr. Tony Benn: As the last remaining Member of the House who was in the Cabinet 30 years ago when the troops were sent in—one of many unsuccessful attempts to impose peace in Northern Ireland by force from London—may I add my sincere congratulations to the Prime Minister on the time, effort, patience and imagination that he and my right hon. Friend the Secretary of State have shown and for which there is absolutely no precedent from any previous Prime Minister? Therefore criticism from the other side of the House should not concern him too much.
Will the Prime Minister consider the fact that, whatever the setbacks and difficulties, and there will be both, he should retain two principles at the forefront of his mind? I am sure that he will do so. First, peace and justice in Northern Ireland depend on the involvement of the two communities, and Sinn Fein has the democratic legitimacy of the ballot box. That is the basis of its entitlement to consideration. Secondly, will he cling, above all, to close relations with Dublin? For the first time since partition, London and Dublin jointly oversee the prospects of peace in Northern Ireland. That, along with a settlement of the difficulty that he has described, offers our best hope for a future in the next century quite different from the tragedy that has befallen Northern Ireland in our own lifetime.

The Prime Minister: I thank my right hon. Friend for his kind words.
This is a clear agreement—a deal. For the nationalist and republican communities, there has to be justice and equality. There has to be an end to discrimination. There has to be a genuine sense of sharing power and responsibility. In return, however, once that full ripening of democracy comes about, all people clearly have to give up the notion that violence can be run alongside the ballot box. From now on, people have to make a choice. The next few weeks are the moment of choice for Northern Ireland. People have to decide whether they are prepared, in return for justice and equality, to forswear the use of violence for ever. I hope that they make that choice.
Our relations with the Irish Government offer an opportunity to provide a way forward. The Irish Government and Prime Minister are entirely sincere in


wanting to make sure that violence and the gun are taken out of the politics of Ireland for ever. We should work with them to ensure that that is so.

Mr. Peter Brooke: If there is any delay in disarming and decommissioning by loyalist paramilitaries, who would not necessarily be adversely affected by that decision, would General de Chastelain have any latitude in the certificates that he gives to others whose behaviour might be affected?

The Prime Minister: No. The obligations stand alone for each group. Each of them has a responsibility to decommission, and for one to say that it would not decommission would give no excuse to others. Everyone has the same obligation, and the penalties can be exacted accordingly.

Mrs. Louise Ellman: I congratulate the Prime Minister on his determination and perseverance in the inevitably complex pursuit of peace in Northern Ireland. While the achievements of the Good Friday agreement necessarily focus on the saving of lives, does he agree that it is important to note openings for increased standards of living for the people of Northern Ireland that are emerging from the new east-west trade routes developed as a result of the agreement? In particular, the Irish Business and Employers Confederation, the Northern Ireland CBI and the north-west development agency are developing links at present.
In view of the overwhelming importance of saving life, increasing living standards and establishing normality of life for the people of Northern Ireland, does my right hon. Friend agree that the House should support his statement, and that—in and out of Parliament—we should support groups who have difficulties, rather than seeking to exacerbate the problems?

The Prime Minister: I agree entirely with my hon. Friend. The potential for jobs, investment and improved living standards is immeasurably increased by a viable peace process. Northern Ireland has an enormous amount to offer inward investors and companies that wish to do business. People should be able to invest in Northern Ireland in the knowledge that a proper political process is under way.

Sir Brian Mawhinney: I, too, commend the Prime Minister on his diligent search for an agreement.
General de Chastelain indicated in his report that he asked the paramilitary groups and parties to respond to two questions—were they committed to disarmament within the terms of the Good Friday agreement, and when would the Government receive details of the modalities? Does the Prime Minister recall that General de Chastelain said that no response was received from either the IRA or the UDA by the 28 June deadline? Will the Prime Minister give us some insight into the discussions held since 28 June with the IRA, either by General de Chastelain or by Ministers, which have enabled him to give so much more encouraging a statement to the House today?

The Prime Minister: I think, again, that is vital to stress certain points. The right hon. Gentleman is

absolutely right to say that de Chastelain made it clear that he could not say at present that there would be decommissioning. That is why the agreement that we have entered into is not dependent on anyone's saying that there will be decommissioning, but, in the first instance, on the Paramilitaries—whether the IRA or the loyalists—giving a statement of intention to decommission, which will be followed by a declaration of satisfaction from the Independent Commission on Decommissioning that that is so.
Actions are what matter. People say that I have received great assurances from Sinn Fein or the IRA that they are about to move ahead, and I believe that the political leadership of Sinn Fein wants the process to work. But my belief is not enough, and assurances are not enough. We have constructed a process in which, unless assurances translate into deeds, people will not sit in the Executive alongside democrats. That is the important point to remember. All sorts of discussions were held last week, and all sorts of assurances given. However, we have learned often enough in Northern Ireland that we cannot pay attention simply to assurances. Unless the assurances are followed by deeds, there is no deal.

Mr. Tony Worthington: I should also like to congratulate the Prime Minister and all those involved in these strenuous negotiations. I should particularly like to congratulate the Official Unionists on what they have achieved in the past three years. If one had said three years ago that the Official Unionists had achieved the principle of consent, backed by the people of Ireland, north and south, in a referendum, it would have been difficult to believe. If one had said that there was to be a massive devolution of legislative powers to Northern Ireland, it would have been difficult to believe. Now all the IRA's armaments and other weapons may be decommissioned by next May. There are failsafes. Does the Prime Minister agree that, if the Official Unionists go along with this agreement, it will be the most miraculous negotiation that anyone has ever achieved?

The Prime Minister: It has not happened yet.
I thank my hon. Friend for the work that he did as Labour Opposition spokesman on Northern Ireland. If we do not put this to the test, we will never know whether decommissioning would have happened. That is why it would be foolish to throw away the chance of getting the decommissioning of all paramilitary weapons by May 2000. My hon. Friend is right to say that many of the issues are already resolved. The issues that have torn apart negotiations in Northern Ireland for years and years, such as the principle of consent, the idea of an Assembly, and the changes to the Irish constitution, are now resolved.

Mr. Michael Howard: I, too, join in the tributes that have been paid to the Prime Minister for his persistence. Does not he accept that the complexities that he has painstakingly explained to the House, however well-intentioned they may be, would be wholly unnecessary if the men of violence were prepared to lay down their arms? What makes the Prime Minister suppose that, if they have genuinely given up violence but refuse to lay down their arms now, so that the Executive can commence, they will lay down their arms in days, weeks or months from now?

The Prime Minister: The simple answer to that question is, if they do not, they will not sit in the


Executive with the Unionists. It is up to them what they do now. They have always said that they will decommission in the context of the implementation of the agreement and the establishment of the institution. Let us see it. If it does not happen, they will not sit in the Executive with the Unionists. If it does happen, we should all be grateful. We must put it to the test. We will never get out of this situation unless we finally throw down the challenge to them, put them to the test, and see whether the test is met.

Mr. Jeremy Corbyn: I, too, join in congratulating the Prime Minister and the Secretary of State on their patience and expertise in all these negotiations, and on the prize that that offers of peace in Northern Ireland and long-term peace for all the island of Ireland. I am sure that he recognises the enormous movements that have been made by the nationalist and Unionist communities in reaching this close position in which we may get long-term peace. I am sure that he, too, wants to see a non-military Northern Ireland in the future. Were there any discussions in the past week or will there be anything in the legislation that he proposes to introduce on limiting the private ownership of licensed arms and the large number of gun clubs in Northern Ireland? Having reached a point at which decommissioning is a real possibility, we surely would not want to see a growth of private arms, which could lead to the destabilisation of a peaceful Ireland in the future.

The Prime Minister: I thank my hon. Friend for his kind words. The tricky issues that he raised in the latter part of his question should be resolved in the longer term. The immediate task is to establish a framework which spells out a guarantee for the parties. That guarantee will allow us to ensure that both devolution and decommissioning occur. That is the primary task.

Finance Bill [WAYS AND MEANS]

CAPITAL ALLOWANCES (FIRST YEAR ALLOWANCES)

Resolved,

That provision (including provision having retrospective effect) may be made in the Finance Bill restricting the expenditure on machinery and plant for use in Northern Ireland in respect of which 100 per cent. first year allowances may be made.—[Mrs. Roche.]

OIL TAXATION (ANTI-AVOIDANCE)

Resolved,

That provision may be included in the Finance Bill about—

(a) the receipts which are to be treated as tariff receipts or disposal receipts attributable to an oil field;
(b) the persons who are to be treated as participators in an oil field; and
(c) the time for payment of petroleum revenue tax.—[Mrs. Roche.]

FINANCE BILL [MONEY]

Queen's recommendation having been signified—

Resolved,

That, for the purposes of any Act resulting from the Finance Bill, it is expedient to authorise any increase in the sums payable out of or into the National Loans Fund attributable to any provision of that Act relating to borrowing from the General Account of the Commissioners of Customs and Excise or the General Account of the Commissioners of Inland Revenue.—[Mrs. Roche.]

FINANCE BILL [WAYS AND MEANS]

CHARGEABLE GAINS: ABSOLUTE ENTITLEMENT TO SETTLED PROPERTY

Resolved,

That provision may be made in the Finance Bill amending section 71 of the Taxation of Chargeable Gains Act 1992.—[Mrs. Roche.]

GOODS FOR SALE ON BOARD SHIPS OR AIRCRAFT

Motion made, and Question proposed, pursuant to Standing Order No. 52(1)(b),

That provision may be made in the Finance Bill amending section 1 of the Customs and Excise Management Act 1979 as respects stores.—[Mrs. Roche.]

Mr. Patrick McLoughlin: Will the Financial Secretary tell us why she considers the motion to be necessary?

The Financial Secretary to the Treasury (Mrs. Barbara Roche): I certainly will.
We shall have a number of debates today on the matters covered by the motions, and during those debates, we will explain exactly why we are dealing with them in this way. It is, of course, natural for representations to be made during the passage of a Finance Bill, not only by hon. Members on both sides of the House—

Mr. McLoughlin: Will the Financial Secretary give way?

Mrs. Roche: Not at this stage. It will be my great pleasure to give way to the not-so-silent Whip when the time comes.
As I was saying, it is right for representations to be made not only by hon. Members on both sides of the House, but by industry. That has been the normal course of events during not only this Bill's passage, but the passage of Finance Bills under the Conservative Administration. Being a listening Government, we listen and take representations into consideration.

Mr. Oliver Letwin: In due course, we shall debate the substance of the new clauses that deal with goods for sale on board ships and aircraft, but this motion paves the way for that substantive discussion. I think that this an appropriate time for us to ask a number of pertinent questions relating to the amounts of the taxes and duties being raised, which are of some significance, and which we debated to an extent when similar matters dealt with in statutory instruments came before the Standing Committee last week.
Can the Paymaster General—or the Financial Secretary, on her behalf—tell us how much money will be raised by this and associated measures? Can she also say how she envisages the money being used? If, as seemed clear in Committee, it is to go directly into the Consolidated Fund—as we would expect—what projections have been made as part of the forward look, how far have the figures already been incorporated in the Chancellor of the Exchequer's projections, and will any revisions to those projections be required?
In Committee, the Paymaster General waxed eloquent about the Government's difficulty in forecasting the financial effects with any degree of accuracy. [Interruption.] As the Financial Secretary says, from a sedentary position, she explained that it would be difficult to forecast the total effect of the change relating to duty-free sales. I assume that this measure will form part of those arrangements. If there is a difficulty of forecasting, how can appropriate numbers have been figured into the Chancellor's calculations? However, if numbers have been figured into his calculations, how can there be the difficulty of calculation to which she alluded during the Committee's consideration of the measure?
The answers to those questions will be helpful when it comes to consideration of the subsequent matters that are associated with the motion, and which fall to be debated a little later.

Mr. David Wilshire: I have a couple of questions to which I would welcome an answer when we debate the substance later. Both relate to the amount of money that will be raised by the measures.
The first relates to something that the Minister said in the Eighth Standing Committee on Delegated Legislation last week. One of the concessions that the Government said that they had obtained was that items that are dutiable, but consumed on board an aircraft or ship, would continue to be "free of tax"—I quote from the Hansard of the Committee. Before we start our debate later, may we be told whether it is free of tax—VAT—or free of VAT and duty? We need to have that point clarified, so that, when we debate the substance, we shall know exactly how much the concession is worth. If it concerns only VAT, it is hardly worth anything. If it concerns VAT and duty, it is a significant concession. That is something that we must debate, but we need the financial facts first.
On the other matter, I would be enormously grateful if, at the start of the debate on the substantive matters, the Government could let us have a list of those ports and airports that are geographically within the European Union, but to which the measures would not apply. What is the value of that concession, or exemption from the regulations that they seek to bring in? I should be grateful for answers to both those questions before we start the main debate.

Mr. Michael Fabricant: I, too, would like to express my concern that there has been insufficient analysis of the split between duty and VAT, which my hon. Friend the Member for Spelthorne (Mr. Wilshire) has already mentioned. In particular, I wonder whether the resolutions would apply to airports and ports, or only the vessels and aircraft themselves. If they apply to airports, in the collection of VAT, how will a distinction be made between travel within the European Union and transportation that is undertaken by passengers outside the European Union—where, of course, the issue will be duty free?
The Minister will be aware that, for example, terminal 3 at London Heathrow has aircraft travelling to the European Union, to other parts of Europe that are not part of the EU and to the United States of America. Has she made any analysis of the burden on shops in trying to determine whether a boarding card is for the EU or outside the EU? Has she made any projections of how much extra revenue will be derived gross over the next five years from the collection of VAT and/or duties, compared with the actual disbursements by the state over the next five years as part of our contribution to membership of the EU?
Has the Minister estimated the costs that will be incurred by Government in ensuring that the new regime will be administered properly? Presumably, extra staff will be employed by Customs and Excise to ensure that the duties are maintained correctly. If that is so, what will be the marginal cost of employing extra staff for each of the next five years? For that period, what burden will the state—and, therefore, taxpayers—bear in implementing the measure?

Sir Teddy Taylor: Will the Minister tell us the implications for our further debates of approving motion 5? Motion 1 states that provision may be made in the Bill
including provision having retrospective effect".
However, in the paper submitted on 12 May, in Brussels, to the code of conduct group, the Minister said:
This Scheme has been legislated but not yet activated.
If there has been some error, will it have an impact on our further debates, bearing in mind that there is provision for retrospectivity in something that has not yet been—

Mr. Deputy Speaker: Order. I remind the hon. Gentleman that we are debating motion 5, not motion 1. As far as I can see, there is nothing in motion 1 about a retrospective effect.

Sir Teddy Taylor: I am not questioning that point. I am asking the Minister what relevance the motion will have to our future debates. I was simply citing the matter as an example of something that has already happened.

Mrs. Gwyneth Dunwoody: Has my hon. Friend the Paymaster General had an opportunity to look back over the papers from any previous Government who, 15 years ago, were aware of what would happen on the matter? Has she had access to the calculations that were made then? Will she also tell us whether she has had any access to the terms of reference of BAA plc on its responsibility being divided between the administration of airports and the creation of shopping malls?

Mr. Edward Leigh: Motion 5 is important, as it could have a significant effect on not only the public, but on Ways and Means motions generally and on the Government's finances. It is a thoroughly unpopular measure, which is being foisted on the British people against their will. However, the matter has now been settled and we cannot argue about it.
The Government pray in aid the fact that the measure will have a significant impact on Government revenue, as those who are affected by it will have to pay duty. Nevertheless, today, I think that we have to hear a bit more from the Minister about the precise revenue implications of a thoroughly unpopular and draconian tax increase being imposed on those who are simply trying to buy something on board a ship or aeroplane.
In this short debate, the Government might also make clear the precise implications of the measure for the various tax regimes as—now that we are getting rid of duty free—even the shortest journey by sea or air might pass through different tax regimes. It is not clear how the measure will be implemented in practice, or how the tax will be levied.
Therefore, not only will the public be losing a highly valued privilege—which they have enjoyed for a very long time—and the Government, by underhand means, be receiving revenue that they had not previously expected, but the public will be put to various inconveniences.

Mr. Fabricant: My hon. Friend mentioned implementation of the measure and various tax regimes. Does he accept that there could be very real difficulty in collecting duty from travellers on a flight going to a European Union destination and then on to a non-European Union destination? How does he imagine that Customs and Excise will ensure that the correct duties are applied at the correct time?

Mr. Leigh: My hon. Friend made that point in his excellent earlier comments. It certainly has not been made clear, to the House or the public, how that problem will be resolved. Clearly, different rates will apply according to whether a flight or sea journey originates from a European Union destination or from a non-European Union destination. However, a part of some air or sea journeys originating in a non-European destination will be made in the European Union. What tax will people pay on those journeys? The public could be very confused. The situation is not acceptable.
We should also consider the potential for the Exchequer to lose revenue because people in Dover and the Heathrow area will lose their jobs as a result of the loss of duty-free concessions. We now hear that such has been

the profit margin of many duty-free shops that they can apparently afford to ensure that the public buy their whisky or cigarettes for the same prices as before. That may be the case, but the Government cannot rely on it. They must come clean and explain the revenue implications.

Mr. Fabricant: Does my hon. Friend share my concerns and those of my hon. Friend the Member for Spelthorne (Mr. Wilshire) about the confusion in the collection of duties between EU and non-EU areas, and the considerable doubt about the sums that will be collected, depending on whether the duties concerned are VAT duties or excise duties in the normal sense of the word? Does he agree that it will be interesting to hear whether the Paymaster General is able to answer my questions about the differentiation between the collection of excise and VAT duties?

Mr. Leigh: The differentiation between excise and VAT duties is very interesting. My hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor) also referred to it. I hope that the Paymaster General will be able to enlighten us. I have certainly received no enlightenment so far.

Mr. Letwin: My hon. Friend's remarks bring to mind a further oddity. Does he agree that the clause to which this motion refers would reduce the revenue accruing to the Exchequer? Is it not odd to have such a Ways and Means motion?

Mr. Leigh: I am not sure whether it is very usual. I do not understand why the Government are apparently reducing the revenue coming to the Exchequer. I cannot believe that that is their intention. I am sure that there is some misunderstanding.
What will be the effect of the revenue from duty free not being available for reinvestment in terminals and the transport network? That useful source of revenue will now be lost—

Mr. Deputy Speaker: Order. I must counsel the hon. Gentleman that he is going far too far.

Mr. Leigh: I apologise, Mr. Deputy Speaker. All those points have implications for the Ways and Means motion. If that revenue is no longer available, the Government must make up the shortfall somehow. The motion is incredibly important and we should have a proper debate on it. It should not just go through on the nod as yet another Ways and Means motion. The implications for the Exchequer are enormous. The public are being made to suffer. The Government are introducing an underhand tax rise which the public did not ask for. It is incumbent on the Minister to explain the implications for Ways and Means.

Mr. Fabricant: My hon. Friend is right to say that the issue should not go through on the nod. Was it not the Speaker's decision that up to 45 minutes should be allowed for debate on each of the Ways and Means motions? Would it not be an insult to the House if we merely nodded them through?

Mr. Leigh: We saw earlier that the Minister was trying to nod things through at the rate of an express train,


moving motions formally. That is not acceptable. The British people demand explanations from the Government and we intend to get them in this short debate of a mere 45 minutes. The public are angry and want an answer. It is incumbent on the Minister to give an answer from the Dispatch Box. If she does not, we should vote against the motion.

The Paymaster General (Dawn Primarolo): The new provisions, which the motion provides the way for, would bring into United Kingdom legislation directive 92/12 EEC, which allowed only until 30 June 1999 the continuation of duty free for passengers to take away at the end of an intra-Community flight or sea crossing. I am sure that at the heart of all the points that have been made is a concern for passengers. I am delighted to be able to tell the House that shopping at Gatwick was easier than ever this morning. Gone are the complicated restrictions for Community travellers, who can now purchase as much as they like, duty paid. The tax-free shops have risen to the challenge and created a marketing opportunity, as we knew they would.
All travellers pay the same price for non-dutiable goods. Almost all prices have been held, emphasising what a good deal this is for the consumer. There is plenty of advice on hand, and travellers and retailers alike have adapted quickly to the new rules. BAA, for example, announced last week that it was holding at least 90 per cent. of all prices at exactly the same level.

Mr. Fabricant: I am not sure whether the right hon. Lady's remarks are strictly on Ways and Means. However, will she clarify how those concerned at terminal 3 at Heathrow, or at the Gatwick terminals—where travellers go within and outside the EU—know what VAT or duties to charge or not to charge? How do they know the passenger's ultimate destination?

Dawn Primarolo: It is up to the duty-free shop to ascertain whether the person is travelling within the EU or outside the EU. All travellers must produce their ticket to purchase at a duty-free shop, and the new technology in shops has been altered to cope with the arrangements.

Mr. Wilshire: I want to ask the hon. Lady about the figures for Gatwick, which are clearly important, as the sales post-duty free will determine the amount of revenue that the Government get. What proportion of the sales was to people travelling from Gatwick to the EU, and what proportion was sold to those travelling from Gatwick to destinations outside the EU? That will tell us how much is duty paid and duty free, and will enable this House to determine what income the Government will receive. The other thing that we need to know—

Mr. Deputy Speaker: Order. The hon. Gentleman can make a brief intervention, but not a second speech.

Mr. Wilshire: I understand your point entirely, Mr. Deputy Speaker. What quantity of goods within those figures is being bought by individuals, so we know how much extra is being taken on aircraft?

Dawn Primarolo: I intended to assure Opposition Members that airports and ports—I gave Gatwick as an example—were coping admirably with the new arrangements. Alas, I do not have responsibility for the commercial success or the figures of those shops, or for the flow of business through them. I was addressing whether things were running smoothly at our airports.
Conservative Members asked me about the expected increase in revenue, and VAT in particular, following the change in arrangements. Last week, we discussed a statutory instrument that also amended our legislation, and I made it clear to the hon. Member for Spelthorne (Mr. Wilshire) and others that it is difficult to give a precise estimate, as the increase will depend entirely on the decisions of shoppers and those who provide the facilities for them.
It is estimated—it is only an estimate—that there could be an increase of £120 million a year, but that depends entirely on how the companies providing the services seize on the new commercial opportunities that are now open to them. That is certainly outside the Government's control. I made it clear in Committee that we would monitor closely how the arrangements work and assess whether they continue to provide the best opportunities that we can secure after the abolition of duty free.
The hon. Member for Spelthorne asked two specific questions, and I hope that it will be in order for me to answer them now. First, I can confirm that consumption on board, once the journey has started, will be free of both VAT and excise duty. Secondly, the territories involved outside the EC fiscal area are Andorra; the Aland Islands; the Channel Islands; Gibraltar; the Republic of San Marino; the Canary Islands; the overseas departments of France; and Mount Athos. I am sure that that will help the hon. Gentleman enormously when he takes part in the relevant debate later.
My hon. Friend the Member for Crewe and Nantwich (Mrs. Dunwoody) asked about regulations, especially with regard to airports. I have not seen any. She asked about the preparation undertaken by the previous Government. There was no preparation, to my knowledge, and that made the task all the more difficult for the Government and the traders as my right hon. Friend the Prime Minister sought a deferment of the abolition of duty free, to enable us to get a good successor regime in place. We had very little time. There has been great co-operation between the traders, airport authorities, ferry companies and Customs and Excise to try to get the best result for everyone.

Mr. Deputy Speaker: Mr. Oliver Letwin.

Mr. Letwin: Thank you, Mr. Deputy Speaker. I was going to try to intervene on the Minister, but she finished before I could. I want to ask—

Mr. Deputy Speaker: Order. I apologise. I had not realised that the hon. Gentleman had already spoken. I called the Minister on the understanding that she was winding up the debate, so we must now put the Question.

Question put and agreed to.

Resolved,
That provision may be made in the Finance Bill amending section 1 of the Customs and Excise Management Act 1979 as respects stores.

WORKS OF ART, ANTIQUES, ETC.

Motion made, and Question proposed, pursuant to Standing Order No.52 (1) (b),
That provision may be made in the Finance Bill amending section 21 of the Value Added Tax Act 1994.—[Dawn Primarolo.]

Mr. Nick St. Aubyn: It is unusual for the House to discuss so many Ways and Means motions. That says a lot about the Treasury's lack of organisation. In the case of this particular motion, it has been known for a long time that certain provisions would have to be made in respect of the art market if the Government failed in their attempt to negotiate a better deal with our European partners. The fact that the motion has been tabled now raises the question of why it was not tabled earlier in the Bill's passage, so that we could have had a proper and detailed debate in Committee on the terms of the new clause that the motion is intended to support.

Mr. Fabricant: Does my hon. Friend agree that there is a real difficulty under the terms of the Ways and Means motion in calculating the additional revenues that will accrue to the Government? Does he also agree that, far from raising funds, the measure would diminish the funds raised by the state by causing a deterioration of the art market in the United Kingdom, in which case, one has to ask why a Ways and Means motion has been tabled?

Mr. St. Aubyn: I am grateful to my hon. Friend for bringing me to my next point, which is to question whether a Ways and Means motion is required. It is known that, when VAT at 2.5 per cent. was introduced on works of art, the volume of international sales conducted in London fell by 40 per cent. If that volume were to fall by a further 40 per cent. when the duty doubles to 5 per cent., which is the effect of the measure that we shall debate later this evening, the amount of revenue raised would go down, not up. Indeed, it has been intimated by those who know a great deal about that market that the level of sales will collapse to almost nothing, so there will be a serious shortfall in the amount that the Government expect to raise. Therefore, a pertinent question for the Paymaster General is, will she confirm how much money is being raised now from the current provision, and how much more or less is expected to be raised once the new provision has been implemented?
I raised the issue of the future of the art market and the tax threat with the Prime Minister in the House a few months ago. I was told that his Government would use all the means at their disposal to ensure the right outcome. I was given to understand that the Government were prepared to use the Luxembourg compromise to force our partners in Europe to think more clearly about an issue wherein they have nothing to gain and we have everything to lose. Why have the Government failed to allow the House a debate on that subject until now? Why have they not been prepared to invoke the Luxembourg compromise in this respect?
In the papers the other day, we read the spin about the Government having saved the art market from a new tax: we were told that the Government's negotiations had averted a tax called droit de suite, which would certainly have been another nail in the coffin of international art sales in London. Why did the Government claim to have

saved the art market from a new tax only a few days before introducing a measure to double an existing tax on the art market in this country?
We need to know why there are spurious definitions in the new clause, and what effect any relaxation of those definitions would have on the revenue to be collected under the Ways and Means measure. Why are limited editions acceptable, provided there are no more than eight—

Mr. Deputy Speaker: Order. The hon. Gentleman is now straying into the territory of the new clause. If, when we come to debate the new clause, he is fortunate enough to catch my eye, he might be able to explore such points at that time, but I would suggest that he does not do so now.

Mr. Fabricant: On a point of order, Mr. Deputy Speaker. I understand from my hon. Friend's arguments and the views expressed by others that the art market is to be diminished, so tax revenue will be reduced. Therefore, is it in order for us to debate a Ways and Means motion, which is primarily used to increase revenues?

Mr. Deputy Speaker: There is nothing out of order about a Ways and Means motion in such circumstances. However, hon. Members will help the Chair if they try to maintain a strict distinction between the debate on the Ways and Means motion and the debate that they will have later on the new clause in the Bill to which it refers.

Mr. St. Aubyn: I am grateful to you, Mr. Deputy Speaker. However, I understood that during a debate on a Ways and Means resolution, we could ask Treasury Ministers exactly what sums they expect to raise. I ask them what is their estimate of the revenue to be raised in respect of limited editions under the various categories listed. Have they given any thought to how much revenue they might lose if the definitions were rather more relaxed? They seem absurdly tight at the moment.
Of all the definitions and restrictions, perhaps the most significant is that which relates to works of art imported into the EU or the UK and then exported outside the EU within 12 months. What is the impact of that provision on the revenue to be raised? What would be the impact if that period were extended to 24 or 36 months? Surely works of art of the kind that we are considering in this debate are typically held by collectors for long periods.
If the intention of the measure is to exempt certain categories to help the international art market in London, surely it would be reasonable for the exemption to last for a period longer than 12 months that would take into account the very long time that it sometimes takes to negotiate the sale of a work of art. Such works of art could then still come through London; otherwise, sales will be lost to centres outside the European Union, such as Geneva and New York.
The estimate that I gave the Prime Minister, with which he agreed, was that 5,000 jobs in our economy—mostly in London, but throughout the UK—are at risk because of this measure. Why, at this late stage, are the Government trying to spring on the House a proposal that will probably cost this country 5,000 jobs without giving us a proper


chance to consider it and without sticking to the assurances that were given in the House only a few months ago?

Mr. Fabricant: When the Prime Minister revealingly agreed with my hon. Friend that there could be a loss of 5,000 jobs in the industry, did he give an estimate of the money that will be lost to the UK in trade and revenue, which is relevant to the Ways and Means resolution? If he did not, will my hon. Friend do so?

Mr. St. Aubyn: That is a matter best left to the experts. I have seen estimates, but I have learned during the proceedings on the Finance Bill that it is safer for us to ask the Government for their officials' professional estimates than to come up with our own. My hon. Friend asks a pertinent question, and I expect the Paymaster General to have the answer. However, there can be no doubt that a loss of 5,000 jobs is very serious for our economy, particularly as some of those jobs are very well paid and extend beyond the art market to the tourist industry. Many people who come to London to buy international works of art also visit places of historic interest, stay in London hotels and fructify the city's economy. All that will be jeopardised by the proposal.

Mr. Geoffrey Clifton-Brown: I listened with care to the answer that the Prime Minister gave my hon. Friend during Prime Minister's questions, and the right hon. Gentleman gave the House a clear impression that he would use all his personal authority to prevent this increase in VAT. Does not my hon. Friend think that the Prime Minister's authority in negotiating in Europe has been severely dented by the necessity to bring this Ways and Means resolution before the House?

Mr. St. Aubyn: I am grateful to my hon. Friend. We have heard time and again how the Government, by engaging in what they regard as a more positive way with our European partners, would somehow deliver great concessions and achieve what we were unable to achieve when we were in government. Surely, this is a test case for that so-called new approach to dealing with the European Union, and the tabling of this Ways and Means resolution is an admission by the Government that their policy towards Europe has failed. No one in the European Union will gain from this increase in taxation, and our market will lose. Everyone agrees with that.

Mr. Desmond Swayne: Has it occurred to my hon. Friend that it is of little consequence to the Treasury should this largely transatlantic business be damaged and disappear on the ground that that will result in a level of convergence with the European continent that would not otherwise be achieved, which is the object of the Government's policy?

Mr. St. Aubyn: I know that I should not be tempted off the issue, but there can be no doubt that the concerns expressed on the Opposition Benches are very much about an important, thriving London market.
When I raised the matter with the Prime Minister, his Back Benchers—it is recorded in Hansard—thought it a laughing matter. They thought that the loss of jobs was a matter of hilarity, much to the Prime Minister's embarrassment. Indeed, Government Back Benchers are

laughing at the moment. It is much to the Prime Minister's embarrassment again that this resolution should be before us. What will be the cost to our economy of the loss of those 5,000 jobs? When will the Prime Minister come to the House to explain why he was not prepared, as he indicated only a few months ago he would be, to invoke the Luxembourg compromise in order to protect a vital national interest?

Mr. John Townend: Will the Paymaster General confirm that it should always be a principle of Ways and Means resolutions that tax increases are to increase revenue? In the resolution before us, tax is being doubled. Does she agree, however, that there is no possibility of the revenue doubling? I suggest to her that the proposals could, as my hon. Friend the Member for Guildford (Mr. St. Aubyn) has said, reduce revenue. Will she give a firm estimate of what proportion of the art market she thinks will leave this country for New York or Switzerland? Will she also give an estimate of the cost of the resolution not only in loss of jobs, but in corporation tax on profits of a very much reduced art business?
Does this not show that European tax harmonisation is not a good thing and will very often hit individual countries? If the Conservative party is proved right and the art market substantially contracts, causing an important loss of jobs, will this not be a very good example of how this House of Commons will not be in a position to take remedial action to restore the position and to bring back the art market? London, as an international art centre, might be destroyed for ever. If this is being at the centre of Europe, it is a disaster for Britain.

Mr. Peter Brooke: I declare an unremunerated interest as president of the British Art Market Federation, which derives from my presidency of the British Antique Dealers Association—which I declare in the Register of Members' Interests, along with its agreeable but uncovenanted excellent Christmas present, on which I declare tax.
Between 1985 and 1987, when I was Paymaster General, I was responsible for answering for Customs and Excise in this House and understudying my noble Friend Lord Lawson, as he now is, in ECOFIN, the latter of which I continued to do until 1989. Having wrestled with exactly the same issues that are in front of us, I have sympathy with the Treasury. I remember the difficulty that they caused us then.
The difficulty, as my hon. Friend the Member for Guildford (Mr. St. Aubyn) has said—I think that it is familiar to everybody who is participating in this debate—is that the introduction of this tax on works of art entering the European Union will result in a significant amount of trade not ending up in London. It will be sold in New York or Geneva instead—indeed, in due course perhaps, in Tokyo as well.
In 1994, when the legislation which we are revising came in, a reasonable question was how we were obliged to take it through if EU tax changes had to be conducted unanimously. The answer was that the Commission had threatened to take us to court under different legislation,


on the ground that a nil rate of VAT represented a potential distortion of trade. I had a leper's squint at that issue in my capacity as the then Secretary of State for National Heritage, as, prior to the creation of the British Art Market Federation, which was stimulated by the previous Government, I used regularly to meet representatives of the art market trade, although VAT remained a matter for Treasury Ministers. My right hon. Friends at the Treasury made it clear that they would give way on VAT, on that subject, only provided that the art trade agreed. However, both sides realised that there was a genuine possibility that the British Government would lose in the European Court against the potential threat. Had they done so, they would have found themselves with a 17.5 per cent. tax rate.
I realise the difficulty with which the present Government have had to wrestle. I am disappointed in the quality and, indeed, the timing of publication, of the European Commission report examining the effects of VAT on the art market. I hope that the Paymaster General will say a word or two about that when she replies. I realise that the Government had to concede. However, I am grateful for the decision contained in the new clause, to which my hon. Friend the Member for Guildford did not refer—probably quite properly, given the rules of order: that there will be a poultice and a palliative in that VAT on works of art created after 1973 will now be taxed at 5 per cent. rather than at 17.5 per cent. I understand that the money resolution is needed to introduce the relevant new clause.
You would rule me out of order, Mr. Deputy Speaker, if I were to dilate at any length on the subject of droit de suite. However, it did come up in the speech of my hon. Friend the Member for Guildford. I congratulate the Government on the robust manner in which they are fighting this issue at present, but I should be grateful if the Paymaster General will repeat that the Government's robustness will continue—although I realise that we are discussing a Department of Trade and Industry matter. It is no good merely to delay the matter; we must win. To lower the temperature of the debate, I point out to my hon. Friend the Member for Guildford that the 5,000 jobs relate to droit de suite as well as to VAT; they are not merely a VAT casualty.

Mr. Andrew Tyrie: I agree with everything that was said by my right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke). I am relatively new to the House, but I am surprised by all these Ways and Means motions on the Order Paper. I do not understand why they are there. Will the Paymaster General give me the precedent for producing an Order Paper laden with such motions at the Report stage of the Bill?
I shall confine myself to the revenue aspects of the matter. Everyone agrees that the increase in VAT will be damaging to the UK art market—that is not in dispute. We do not need to look into the crystal ball; we can read the book. The increase from 0 to 2.5 per cent. had a deleterious effect on the existing art market. Labour Members seem to find that a matter for levity—as they do whenever we debate the subject; I find that deeply regrettable. In the light of the imposition of an increase in

VAT from 2.5 to 5 per cent., how much will revenues fall? We are debating a Ways and Means motion. What estimate have the Government made of the fall in their revenues that is likely to result from that imposition? If there is no fall, how much will the increase be? My guess is that it will be extremely small.
I reinforce the point made by my right hon. Friend the Member for Cities of London and Westminster as to the European Commission's report. We were promised a thorough study of the matter, but we have not received one. If the report has been published, it must have come out quietly, because I have not seen it. If it has been published, what does it say and what is the Government's reaction? Is there any succour in it for the UK art market?
Finally, did the Government argue forcefully for an extension of the derogation, or did they capitulate? Did the Government seek to find any allies for the approach that they took?

Mr. Clifton-Brown: I am glad to catch your eye in this debate, Mr. Deputy Speaker. This is the first chance that the House has had to address this issue since we had the news that the Government had been obliged to concede on the increase in VAT from 2.5 to 5 per cent. on certain works of art.
The way in which the Government have introduced the Ways and Means resolution is a disgrace, for two reasons. First, the Government must be in a certain amount of chaos or they would not have had to produce so many Ways and Means resolutions tonight. Why on earth had they not thought of all this during the Bill's many weeks in Committee? The Government should have been able to think about some of these matters. The subject of the resolution that we are now debating may have caught them unawares, but they should have been able to set many of the others before the House earlier.
Secondly, it is an utter disgrace that, only a few weeks ago, the Government were telling us that they had saved the art industry from the need to introduce this Ways and Means resolution. That was typical spin by the Government. Time and again, when something dreadful is about to occur, they say, "Do not worry; we have prevented it"—and at the end of the day, when everyone has taken their eyes off the ball, lo and behold: they come to the House with a Ways and Means resolution. You would rule me out of order if I went into any more detail, Mr. Deputy Speaker, but it bodes very ill for a much more serious matter—the withholding tax.
I cannot understand why the Luxembourg compromise was not invoked, given that the harmonisation of VAT across Europe is so much against the interests of the whole European Community, not just of this country. If it had been invoked, the Ways and Means resolution would not have been before the House tonight. It is essential that, when the Paymaster General replies, she tells us in some detail what negotiations took place with the Commission, and through the Council, that caused the resolution to be before us tonight.
I have some questions for the Paymaster General; I should be grateful if she would answer them. The very helpful notes on clauses tell us that this measure applies not only to works of art—to which we have confined our debate this evening—but to antiques and collectors' pieces. It would be useful for the House and the trade to


Know—obviously, the Government would not introduce the resolution if they had not made the calculations—how much extra tax the Paymaster General expects the increase to net the Government, first from art and, secondly, from antiques and collectors' pieces. It would be interesting to know what projections the United Kingdom Government have done on this matter—whether they really think that they will net an increase in VAT as a result of passing the Ways and Means resolution. Like my hon. Friends, I have a strong suspicion that there will be a net loss of VAT, but let us hear the Government's predictions.
My right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke) mentioned the amendment to section 21 of the Value Added Tax Act 1994 to decrease the rate of VAT for those works of art created after 1 April 1973 from 17.5 to 5 per cent. It would be interesting to know how much VAT that will lose the Government. What figures have they calculated in that respect?
It has been calculated that the changes will lose the UK 5,000 jobs. In introducing a Ways and Means resolution to the House, the Government should be able to tell us—it would help the trade—how many jobs are likely to be lost as a direct result of this measure and how many are likely to be lost as a result of the combination of this measure and the introduction of droit de suite.
It would be useful to know how many jobs the Government reckon will be exported from the European Community; after all, it is the European Community that is forcing us to introduce the measure. Are all those jobs to be lost to the UK and the European Union, or will some of them be redistributed around the European Union? Will there be an increase in the art market elsewhere in the European Union? If that were the case, it would make some sense for the Commission to insist that the UK introduced the measure. If none of those jobs is to be reclaimed in the European Union, it seems daft.

Mr. John Bercow: Will my hon. Friend give way?

Mr. Christopher Leslie: Will the hon. Gentleman give way?

Mr. Clifton-Brown: I shall give way to my hon. Friend and then to the hon. Gentleman.

Mr. Bercow: Is my hon. Friend aware, in the context of the motion, that the habitual refrain of Ministers is that they eschew the cause of tax harmonisation within the European Union despite appearances to the contrary? Does my hon. Friend agree that it is of the utmost importance that, in responding to the debate, the Paymaster General should explain to us how she distinguishes the words "to harmonise" and "to co-ordinate", given that page 898 of the "New Shorter Oxford English Dictionary" defines "to co-ordinate" as to
place or class in the same order, rank or division"?
What is the difference?

Mr. Clifton-Brown: My hon. Friend raises an interesting point. However, I am sure that, if I strayed too far down that path, you would rule me out of order, Mr. Deputy Speaker. We on the Opposition Benches

believe in tax competition, not tax harmonisation. On this matter, the Government are entirely inconsistent. When I raised at some length the question of tobacco taxes, the Government were all for having a tobacco tax at a different rate from that of the rest of the EU and losing a huge amount of revenue thereby. However, when it comes to the issue that is before us, which will result in the loss of many jobs, the Government seem to want harmonisation. I do not understand why the Government cannot be more consistent on this matter. If they were, at least everyone would know where he stood.

Mr. Leslie: Will the hon. Gentleman explain why, in 1994, the Conservative Government gave a legal undertaking to increase the value added tax on imported works of art to 5 per cent?

Mr. Clifton-Brown: If the hon. Gentleman had been present—I am not sure whether he was—to listen to my right hon. Friend the Member for Cities of London and Westminster, he would have heard that, if we did not agree to an increase from 2.5 to 5 per cent., albeit that we had a derogation for 20 years, we would be subject to a threat to take us to the European Court, and the European Union could have imposed a 17.5 per cent. rate of tax. That would have been far more damaging.
I am saying that the Government are dealing with the circumstances as they arise, and they are that the derogation is to end in June or July. The Government have to deal with that. It is their stewardship that we are under, whether we like it or not. They appear to be intent on decimating our art market because it seems that they cannot put an appropriate argument to our European partners that the increase in tax is disastrous for us and for them as well. It is daft. If the increase would benefit the EU as a whole, there would be some sense in it, but that is plainly not the position. As my right hon. Friend the Member for Cities of London and Westminster has said, business will be driven away. It will go not to Paris, Berlin or anywhere else in the EU, but outside it. It will go, for example, to Geneva, New York or Tokyo. The EU will lose jobs, balances of payments will be adversely affected and tax revenues will be lost.
The Prime Minister put his personal authority on the line when he said that he would do something about this tax increase. He said, in effect, that he would convince our European partners that it did not make sense. At the end of the day, he failed in that respect. If that has happened, how many more times will he fail in Europe, and how many more times will the United Kingdom be disadvantaged thereby?

Mr. David Heathcoat-Amory: Like a number of my right hon. and hon. Friends, I do not think that the motion should be nodded through, notwithstanding that we can debate the substance of new clause 14 at a later stage this evening. We need to know from the Minister now what the anticipated yield will be from doubling valued added tax on imported art.
We are talking about a most important industry. Labour Ministers seem somewhat dismissive of the art industry as a whole and they should be reminded that it is not based only in London. There is an extensive network of dealers and galleries throughout the United Kingdom and


there are many ancillary industries such as framing, conservation, insurance and shipping, all of which feed off the international market, which is based in London.
The motion would double the rate of VAT on imports. We know that it derives from a directive passed in 1995, from which the United Kingdom had a limited derogation. As so often happens with the European Union, the boomerangs return. The Government may remind us this evening that they have postponed the separate threat represented by droit de suite, the levy on the resale of contemporary art. It would be useful to know on what terms that has been postponed, and whether it may turn out to be a boomerang as well.
In the 1995 agreement, it was agreed that, by 1999, when the British derogation ended, there should have been a study into whether VAT on imported art was damaging the European art market. That report has been produced. It was late—it should have been produced last year, but it was made available only a few months ago. It is interesting that, although the report was commissioned by the European Commission, and to that extent is not wholly impartial, it nevertheless paints a good picture of the damage already caused by VAT, even at present levels.
As regards the impact on the United Kingdom, the report states:
Between 1994 and 1997"—
during that period, VAT at 2.5 per cent. was imposed—
the United Kingdom went from being a net importer … to being a net exporter
of art, so VAT even at that lower rate clearly caused damage. The report also records—this is dangerous—the views of the New York dealers, whom it states
are all very excited at the prospect of import VAT rates being increased in the UK (which they see as their main competitor).
The report concludes that
high value buyers and sellers are increasingly choosing New York over London as their preferred venue because of the 2.5 per cent. differential.
That happens even at the present VAT level, which we are about to double.

Mr. Geraint Davies: Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory: Will the hon. Gentleman forgive me? I want to give the Minister an opportunity to respond.
The Commission's own study shows conclusively that damage has been caused, so it was—I choose my words carefully—mendacious of the Commission to assert in its press release that the report had provided no evidence of damage to the European art market. That was flatly untrue.
The Minister will probably remind us in a moment that the Commission has agreed to reduce the 17.5 per cent. VAT rate that at present applies to contemporary art painted or created since 1973. That is a welcome development, but it does not offset the damage that will be caused by the doubling of the 2.5 per cent. rate.
The Commission, which after all has a duty to promote the economic interests of Europe as a whole, even if it is dismissive of the UK's interest, should not have ignored

the evidence of its own study, which showed damage not simply to the UK, but to the entire European art market. The only people who will be pleased by the motion are competitors outside Europe, in Switzerland, the United States, Japan and elsewhere. It will simply transfer business—

Mr. Leslie: Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory: I shall give way very quickly to the hon. Member for Shipley (Mr. Leslie); I apologise to the hon. Member for Croydon, Central (Mr. Davies).

Mr. Leslie: I am grateful to the right hon. Gentleman. Can he confirm whether, when he has Paymaster General in 1994, he was in any way involved in the discussions or negotiations about the move from 2.5 to 5 per cent?

Mr. Heathcoat-Amory: I was not Paymaster General in 1994, so I had nothing to do with the negotiations.
I conclude with a request to the Paymaster General. If the motion goes through—it looks as though it will—and if the Commission's own study turns out to be correct and damage will be caused, will she ask it to produce a further study in due course so that it can return to this matter and reduce the minimum mandatory rate?

Mr. Clifton-Brown: Does my right hon. Friend agree that the people responsible for the measure are officials sitting in highly paid jobs in the Commission who do not care about job losses even though 17.5 million people are already unemployed in the European Union?

Mr. Heathcoat-Amory: My hon. Friend is entirely correct. The measure is a bureaucrats' charter and the people in the Commission who introduced it will not lose their jobs. Our constituents who rely on the vitality and success of the trade will lose their jobs—not the people in the big auction houses, which will simply transfer their auctions to New York. The little people—the porters, the packers, the office staff, the experts, the framers—will lose their jobs. They have been abandoned by the Labour party, but they have not been abandoned by us, as my hon. Friend the Member for Cotswold (Mr. Clifton-Brown) says.
I understand the constraints under which the Paymaster General has been negotiating, but, even at this late date, I ask her at least to ask the Commission to study this matter and return with other proposals if the damage, as reported, occurs.

Mr. Deputy Speaker: I call Mr. Fabricant.

Mr. Fabricant: rose—

Mr. Deputy Speaker: Order. I apologise to the House; I was distracted for a moment. Has the right hon. Member for Wells (Mr. Heathcoat-Amory) given way or has he concluded his remarks?

Mr. Heathcoat-Amory: I have concluded.

Mr. Deputy Speaker: In that case, I should call the Paymaster General to reply to the debate in the remaining time.

Dawn Primarolo: I shall try to deal with all the points that have been raised within the short time that remains. If I cannot, I shall certainly deal with them in the later debate.
I remind the House of the context of this matter. The previous Government—I understand that the right hon. Member for Wells (Mr. Heathcoat-Amory) was Paymaster General from 1994 to 1996—committed us to an absolute legal obligation to raise VAT on works of art from 2.5 to 5 per cent. The then Government asked the Commission to undertake an independent study, but they unfortunately did not have that written into a directive. The agreement was political and therefore not enforceable in law.
The right hon. Member for Cities of London and Westminster (Mr. Brooke), who is very well informed and follows these issues closely, referred to the delayed report. He is quite right: the independent report should have been available at the end of December, but it was not available until March. The Commission made its response as late as 28 April and the Government's view is that it ignored the recommendations. In our opinion, the Commission's recommendations did not properly recognise elements of the independent report, which we then pursued vigorously with the Commission and other member states.
The hon. Member for Chichester (Mr. Tyrie) asked about the Commission's report. I can tell him that it and an explanatory memorandum were put before the House along with the Government's view. Although the report was lodged with us, the Commission unfortunately did not make it generally available and, under the agreement undertaken by the previous Government, we could not require it to do so. However, we at least obtained a copy for ourselves and were able to scrutinise the details.
The Government were faced with the Commission's insistence on the implementation of the absolute legal requirement. As hon. Members know, the consequence for the Government of not complying with our legal obligations would have been infraction proceedings and things could have been considerably worse. None the less, we continued to pursue the Commission to seek either an extension of our derogation or the setting of 2.5 per cent. as the rate for the rest of Europe. Only one other EU country—Denmark—applies the 5 per cent. levy, and the others apply higher rates.
The Government faced an absolute legal agreement and had no room for manoeuvre because the independent report had not been written into the directive. The Commission refused to move, and other member states did not agree to reopen the matter. At present, income to the Government is around £10 million, and the increase in VAT to 5 per cent. on goods currently taxed at 2.5 per cent. will yield around a further £10 million in a full year. The offset resulting from widening the scope of the new 5 per cent. rate to include imported works of art previously taxed at 17.5 per cent. will, however, leave the overall package effectively revenue neutral.

Mr. Tyrie: Will the Minister give way?

Dawn Primarolo: Forgive me, but I have been left little time to reply to the debate. I shall be happy to return to the point in later debates.
The Government have continued to work closely with the art market, recognising its valuable contribution to a global art market centred on New York and London. The European Union should see London as a European centre of excellence, but we have not been able to win that argument at this stage. In a press release, the British Art Market Federation welcomed the Government's decision to provide for the reduction on imports of contemporary art, saying that that decision and
the Government's equally robust opposition to the Artists' Resale Rights Directive,
—not relevant to this debate, and not part of my responsibilities—
will we believe, enable us to maintain the UK's competitive position in the international art market.
The federation recognises what we have done, and recognises that we were bound by legal obligations because of the previous Government's commitments. It has congratulated the Government on vigorously pursuing the best interests of the art market. Despite what some Opposition Members say, the Government are committed to ensuring that the British art market gets a fair deal.

Mr. Leigh: I am sorry that the Minister was unable to give way during the debate. Clearly, she had time to do so. What can she say about new subsection 6(a), which sets out items accepted for definition—

Mr. Deputy Speaker: Order. I am afraid that the Minister will not have an opportunity to answer that question.

It being three quarters of an hour after the commencement of proceedings on the motion, MR. DEPUTY SPEAKER put the Question, pursuant to Standing Order No. 52(1)(b) (Money resolutions and Ways and Means resolutions in connection with Bills).

Question agreed to.

Resolved,

That provision may be made in the Finance Bill amending section 21 of the Value Added Tax Act 1994.

VALUE ADDED TAX (PREPARATIONS ETC OF MEAT, YEAST OR EGG)

Motion made, and Question proposed, pursuant to Standing Order No. 52(1)(b),

That provision (including provision having retrospective effect) may be made in the Finance Bill amending the provisions of Schedule 8 to the Value Added Tax Act 1994 by virtue of which supplies of preparations and extracts of meat, yeast or egg are zero-rated.—[Mr. Jamieson.]

Mr. Letwin: I am not clear about the meaning of the motion. Nor am I entirely clear about the guidance on Member's interests, so, for the avoidance of any impropriety, I declare a possible interest in that a pet shop may have been a client of the bank of which I am a director.
The motion is the most vexed of those before us this afternoon. I have a few straightforward questions that Ministers may wish to answer now so that we do not have to deal with them when we reach the considerable number


of substantive questions to be debated later. I am not clear—the notes on clauses do not make it clear—whether the situation is as I envisage it, which is that up till the time when the lacuna that gave rise to the substantive change was spotted, pet shops were paying VAT.

Dawn Primarolo: indicated assent.

Mr. Letwin: I am glad to see that I am right in that. In that case, this Ways and Means motion cannot possibly have the effect of changing the revenue that was extracted or would now fall to be extracted from those who were previously operating under the mistaken assumption that the law was correctly constructed and that Customs and Excise had the right to levy the VAT that it was levying.
The motion must therefore relate to the future and to the question of how much can be raised in the future. Will the Paymaster General give us an estimate of the effects on the Revenue of that change in the future? What will be the immediate effect—the first-round effect? What additional VAT revenue will be raised assuming no demand elasticity? What will be the second-round effect—the long-term effect—assuming that things change and people use less pet food as the price rises?
I take it that the Treasury has done an analysis of both those effects. For reasons which I do not want to dwell on now—it would intrude into the substantive debate—I do not want to go into detail about why I think that this is an important question to answer. However, I hope that the Paymaster General can clear up the factual point and give us an idea of those two projections, which I presume the Treasury has made.
Will the Paymaster General give us some guidance? Has it been normal practice in the past to have a Ways and Means motion when an uncovenanted error has been discovered ex post? That would be instructive for the future ordering of parliamentary business.

Mr. Fabricant: I am a little surprised that the hon. Member for Burton (Mrs. Dean) is not present. The headquarters of Bovril and Marmite are located in Burton, which is close to Lichfield. The House will know that Bovril and Marmite make use of beef extract and yeast, which are the substances referred to in this Ways and Means motion. My hon. Friend the Member for West Dorset (Mr. Letwin), who leads from the Front Bench so expertly and fluently, asked about pet foods. Will VAT be applied only to products used in alcoholic beverages, such as yeast and egg—which I suppose is used in egg nog or advocaat—or will it be applied to Marmite and Bovril?
We need an assurance that VAT will not be applied to Bovril. [Interruption.] As my hon. Friend the Member for West Dorset says, we must make a plea for Bovril and Marmite to ensure that they remain exempt. If VAT were applied to those products, employment in Burton would be affected, and it is conceivable that people in Lichfield work in that factory, which is only a few miles down the A38. More importantly and more directly related to this Ways and Means motion, we need an assurance that this small measure does not mean that VAT will be put on human food. Will the Paymaster General give a clear and

unequivocal assurance that VAT will not be applied to Bovril or Marmite as a precursor to VAT on foods generally?
It would be utterly hypocritical if the hon. Lady could not give that assurance. Many of us remember the scares that the Government caused before the last general election when they were in opposition. They asked for such guarantees, even without the Ways and Means motion which spurs me to ask this practical question.
If Bovril and Marmite are not to be exempted, will other products also not be exempted? If so, will the Paymaster General list those products? It is not just the hon. Member for Bovril—or the hon. Member for Burton—who ought to be present; others should be here, given that food industries in their constituencies may now have to pay VAT and other duties on food under the present Government, for the very first time.
I dare say that the Paymaster General will say that this is just another example of tax co-ordination with Europe, where VAT on food is the norm; but what will be the annual value of transactions affected by the change? How much of the tax will be on food, how much on pet food and how much on alcoholic beverages, particularly advocaat?
Mr. Clifton-Brown: Is this not yet another example of the Government's hitting the poor with regressive taxation? Are they not taxing basic foods in the worst possible manner?

Mr. Fabricant: I take exception to that. I always like Marmite on my toast, and, while there is nothing wrong with being poor, I would be mendacious if I said that I was.
What consultation has the Treasury had with food and drink manufacturers? I am not talking just about Bovril, and I am not talking just about beer manufacturers, which are also based in Burton. What consultation has taken place about the amount that would be raised? What evidence exists to suggest that the current tax regime unduly benefits this part of the food and drink industry, to the detriment of other parts? Why has the measure been introduced? The House needs to know. What are the ulterior motives?
The Paymaster General looks at me in surprise and horror.

Dawn Primarolo: rose—

Mr. Fabricant: I give way to the Paymaster General. Perhaps we shall hear an answer as well as a question.

Dawn Primarolo: Does the hon. Gentleman realise that we are talking about pet food?

Mr. Fabricant: The Paymaster General says that we are talking about pet food, but that is not at all clear from the motion. If we are, can she give us a firm undertaking that VAT will be imposed on neither Marmite nor Bovril, and that a Labour Government will never—I repeat, never—impose VAT on human food? If she will not give that undertaking, will she withdraw the disgraceful remarks that she made when her party was in opposition,


and when she posed similar questions to my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), who was then Chancellor of the Exchequer?
If the change—I refer to the amendment provided for in the motion—be deemed always to have had effect, what will be the "retrospective effect"? How far back does the Paymaster General mean to go—three years, six years, nine years? What will be the clawback? If it applies only to pet foods, what will be the implications for major manufacturers and major employers such as Pedigree? The Paymaster General laughs, but Pedigree is the largest pet-food manufacturer in Europe. Based in the east midlands, it employs hundreds of people, who could lose their jobs as a direct consequence of this measure.
I do not need to tell you, Mr. Deputy Speaker—I have raised the issue on the Adjournment, and in questions—that the last tax harmonisation introduced by the Labour Government of which I was conscious involved the introduction of water regulations. The regulations seemed innocent enough in themselves, but, as a result, Armitage Shanks in my constituency was taken over by a United States company, and jobs were lost—simply because the Government thought that co-ordination in Europe would put us at the heart of Europe, notwithstanding that loss of jobs. That, of course, has nothing to do with the motion that is under discussion.
We need assurances today. We are not just talking about Marmite and Bovril, but about the entire food industry. The Paymaster General may proudly say, "It affects only pet foods" but what are the job implications for firms such as Pedigree and others? How many years back will the retrospective action go?

Mr. Peter Luff: As I listened to the apocalyptic comments of my hon. Friend the Member for Lichfield (Mr. Fabricant), I wondered whether Nostradamus had in mind the motion when he prophesied all kinds of things for this period in July; somehow, I suspect not.
Like my hon. Friend the Member for West Dorset (Mr. Letwin), I have racked my mind to think of an interest to declare. I cannot think of one, except that, having heard my hon. Friend the Member for Lichfield speak, I should declare that my son is a prodigious eater of Marmite and that my dog eats large quantities of Bonio dog food.
As Chairman of the Select Committee on Agriculture, I thought that it was an issue on which I should perhaps detain the House for a few moments. The motion seems to be one of the more regrettable of those on the Order Paper, principally because it is retrospective. The Minister may argue that it corrects an error by the previous Government and is therefore not retrospective, but it has not been law for the past five years and the Government intend to make it so, first by the motion and then by the new clause, which we will debate later. That is of some concern.
It is not a great matter of party controversy. If it was an error—the notes on clauses tell us that it was, and who are we to disagree?—by the previous Government, it should be corrected, but I cannot help reflecting on the fact that, in my experience, if errors relating to VAT on pet food are committed by ordinary citizens, their correction is rigorously enforced. However, according to

the motion and the subsequent new clause, Customs and Excise will be given the benefit of the doubt if it is found to be responsible for the fault and is likely to lose revenue.
A year or so ago, I had a case in my constituency of a pet shop owner who decided to sell his products by breaking bulk purchases and splitting packets. There was a huge dispute as to the VAT liability that flowed from that decision, which could have put that pet shop out of business. Fortunately, after an unsympathetic Customs and Excise inspector, a more sympathetic one came along and the matter was put right, but, often, disputes over VAT on pet food can have important consequences for small businesses. Therefore, the Paymaster General owes us a clear explanation of exactly what is going on in the new clause, bearing in mind how strongly retrospective errors by Customs and Excise are enforced.
I am concerned about the details of the new clause that are provided in the notes, which say:
The practical effect of the amendment will be to restore taxation to certain foodstuffs, principally pet food, and to restrict the zero-rating to non-alcoholic beverages made from extracts of meat, yeast or egg.
I recognise weasel words when I see them.

Mr. Fabricant: I am grateful to my hon. Friend for pointing that out. He was here when the Paymaster General pointed out rather pompously that the measure applied only to pet food. He has pointed out that it applies principally to pet food. In any event, that is what is said in the explanatory notes, not the measure itself. As Chairman of the Agriculture Committee, does he agree that the motion might, either on purpose or inadvertently, apply to foods? Therefore, it would be nice to hear a reassurance that the Government will never introduce VAT on any human foodstuffs.

Mr. Luff: My hon. Friend makes a good point. It is clear from the explanatory notes that the Government understand that the measure involves the extension of VAT to human foodstuffs. The notes refer to
certain foodstuffs, principally pet food".
The Paymaster General shakes her head. If the measure does not refer to human foodstuffs, why do the notes on new clauses say that it does? We need a clear explanation of precisely which foodstuffs are affected and which are not.
Why the urgency? The error has gone uncorrected for five years. When was the error spotted by the Paymaster General's officials? It must logically have been spotted some time in the past week; otherwise the measure would surely have been dealt with earlier in the proceedings on the Finance Bill.
What brought the error to the Paymaster General's attention? What is the problem that has caused her the great concern? Why has it not been left for next year's Finance Bill? Why is there a great ragbag of motions before the House today?
My hon. Friend the Member for Lichfield made great play—understandably, in view of the possible effects on Marmite and Bovril—of the absence of the hon. Member for Burton (Mrs. Dean), but I say in her defence that the precipitant way in which the Government have brought the motion to the House today may have meant that she was not aware of the possible implications. If she were, I am sure that she would wish to explore them with the


Paymaster General. That leads to the more important question: what consultation have the Government had with the sectors of the pet food and other food industries that are likely to be affected by the motion and the substantive new clause?
Specifically, what pet foods will be affected by the motion? We do not know what the measure's practical effect on ordinary pet owners will be. It is important that, before the motion is nodded through, we hear what practical effect it will have on pet owners.
We know that some pet owners are among the poorest members of our society—those who the Government claim they wish to help. An extension of VAT on pet foods is not an inconsequential matter, but of great moment for some of those people.

Mr. Fabricant: Is my hon. Friend aware of the therapeutic value of pets, and that pensioners, old people and people with psychiatric problems all benefit from owning pets? Will they be able to afford to keep them if there is VAT on pet foods, or even more tax on pet foods, which will put prices up?

Mr. Luff: Looking at you carefully, Mr. Deputy Speaker, I judge that I should probably not get too sidetracked down that alley, but I agree with my hon. Friend.
We need to know the precise effects of the measure on pet foods. What will happen to retail prices as a result of it? What will happen to the Government's revenues? What sums of money are actually involved? What sums of money have been lost as a result of the mistake in 1994? What sums of money will be recouped in future years as a result of its correction?
I know from bitter experience in the House that the simplest and most apparently innocent measure often is the source of the greatest concern to the House, or should be. Anything that begins casually with the words
This new clause corrects an error in the consolidation of existing law
puts me immediately on my mettle. The Paymaster General has said in an almost jocund tone, "It refers only to pet foods." It is potentially a serious measure for the House to consider. She needs to treat the matter with some seriousness, not levity, in her winding-up speech.

Mr. Michael Jack: My eye is taken by the terms of the motion. The first point on which I seek clarification was raised by my hon. Friend the Member for Mid-Worcestershire (Mr. Luff)—the provision having retrospective effect. That also worries me. Retrospection in any tax measure is something of which Treasury Ministers always fight shy. I am intrigued to know why the law must go back to what it would have been had it been correct in September 1994. I should be grateful if the Minister could spell out more clearly than the notes on clauses what the measure means for companies. I am unclear as to the financial impact of retrospective VAT legislation on those enterprises.
What I am clear about is constituency cases where VAT problems of immense complexity drag on for some time, where it is sometimes difficult or, indeed, costly to

unravel the consequences of what to the citizen is retrospective activity. However, here we are talking more seriously about a change in the law.
How was it that that particular error in transcribing a cross-reference from the Value Added Tax Act 1983 came to occur? Some people may think that the motion is part of a wider exercise by officials, admittedly and understandably, combing VAT legislation to close loopholes and protect the Government from perceived revenue loss. However, is the motion being proposed for other reasons? Hon. Members should be told why the error—which has lain dormant since 1983—has suddenly been resurrected, just as the century ends. How did that occur?
The motion, intriguingly, deals with "preparations". I am not sure which definition of preparation is being used in the motion. I appreciate that VAT legislation has long ensured that the manufacture of foods—the bringing together and further processing of certain ingredients, adding value—such as biscuits and sweets has always attracted VAT. I should also tell my hon. Friend the Member for Lichfield (Mr. Fabricant) that those foods are for human consumption. Nevertheless, I do not fully understand how the word "preparations" is being used in the motion. Does it entail the bringing together of raw ingredients without further processing, or bringing together some of the ingredients that would be affected by the proposal after they have been further manufactured, cooked or processed in some other way?
Ministers should give the House some clear and detailed explanation of what they are inviting us to agree. The motion, taken at face value, does not assist us in our voyage of exploration, but its import may be greater than it seems.

Sir Teddy Taylor: Will the Minister answer one brief question? Is there any way at all that the Government could mark on the Order Paper matters about which the House has no power to do anything? Perhaps I should first declare an interest: I have a dog of my own, called Corrie. When I get back from the House, he likes me to take him for a walk. Sometimes, however, I am detained in the Chamber, not because hon. Members talk too much, but because we spend our time talking about things about which we can do nothing.
I know that you will be well aware, Mr. Deputy Speaker—because of the great interest that you take in public affairs—that the House has recently spent hours and hours debating matters that we can do nothing about. We have had a great deal of discussion, for example, about genetically modified foods, about which people get very excited and agitated. However, because of European law, we can do absolutely nothing about GM food. We also had a long debate—for a whole day—on the age of homosexual consent, although Parliament could do nothing at all about it.

Mr. Deputy Speaker: Order. The hon. Gentleman is a very experienced hon. Member. One example by reference perhaps; but he must not go on, ad infinitum, on matters that are nothing to do with motion 7.

Sir Teddy Taylor: I am sorry, Mr. Deputy Speaker; but it is everything to do with the motion. I simply want


to ask Ministers whether, in light of Article 28(2)(a) of the EU sixth directive, they have any power to do anything about the substance of the motion?
We may all think that retrospective taxation is ridiculous, and agree that the Government should withdraw a motion that would unfairly apply taxation—and carry the can for it. However, my understanding of the situation—you may not think that this is relevant, Mr. Deputy Speaker, but it is—is that, even if all 635 hon. Members said, "Let's agree that we will not backdate tax on dog food", and voted accordingly, it would have no impact at all. The Government would have to levy the tax, simply because of the sixth directive.
I know that you, Mr. Deputy Speaker, and other people do not like me talking about these things, but it is time that Parliament woke up to the fact that we spend hours and hours talking about things about which we can do absolutely nothing. I simply wish that Parliament would wake up to the fact that a democracy is dying every single day, and that—on this issue, as on so many others—we are wasting our time talking about something about which we can do nothing.
Will the Minister say if, by any remote chance, I am right about that point? If, by any remote chance, I am talking a load of rubbish, as the Deputy Speaker seems to think, will the Minister say—

Mr. Deputy Speaker: Order. The hon. Gentleman has made a disgraceful suggestion. I am here merely to try to keep the House in order, and believe that the hon. Gentleman was straying into generalities too far beyond the scope of motion 7. I hope that he will consider very carefully what he said.

Sir Teddy Taylor: I am sorry—it is simply something that I feel very strongly about.
I was asking a simple question. I hope that the Minister will tell us—to avoid my having a dispute with the occupant of the Chair, which I have never had in my 35 years in the House of Commons; and to help the House of Commons—whether the Government might consider having on the Order Paper a little map, circle, scroll, arrow, or something that would not be too controversial or cause a dispute in the House, to indicate those matters about which we can do nothing. That would save a great deal of the House's time, and give me more time to go back and take my dog out for a walk.

Mr. Leigh: The Minister, in an intervention on my hon. Friend the Member for Lichfield (Mr. Fabricant)—she obviously thought that it was a devastating intervention—asked whether he was aware that the motion applied to pet food. What she did not confirm was that the motion applies only to pet food. The Minister should realise that our suspicions and concerns have been fuelled by that intervention—although I think that the argument could be resolved very easily.
The motion's implications for the Revenue are enormous: the political and revenue implications of launching any attack on the principle of zero-rating food are staggeringly important. I should really like the Minister, on behalf of the Government, to commit herself to the principle that we are not starting to renege on the

pledge, which was given in the general election by her and the Government, that we shall not move away from zero-rating on food.

Mr. Swayne: Does my hon. Friend agree that the Order Paper does not mention pet food at all, but talks about "meat, yeast, or egg"? As a consequence of the measure, and to avoid the taxation increase, we may well have to eat unleavened bread.

Mr. Leigh: I am not sure about the need for unleavened bread. However, I am sure that, so far, we have not received a commitment from the Minister.
My hon. Friend the Member for New Forest, West (Mr. Swayne) was right to say that Back Benchers can go only by what they are told in the explanatory notes—which should be helpful. The notes that we have been given today are not at all helpful—except, as my hon. Friend the Member for Mid-Worcestershire (Mr. Luff) has made clear, in fuelling our suspicions. If we were supposed to be reassured that the motion would apply only to pet foods, why does paragraph 2 of the explanatory notes state—as my hon. Friend the Member for Mid-Worcestershire said—that the measure will apply "principally" to pet food? Why do the notes not say that it will apply only to pet food? The House deserves a reassurance on that matter.
It would be the utmost hypocrisy for the Government—under the guise of a seemingly innocuous measure concerned only with pet food—to increase their revenues by extending VAT to ordinary foodstuffs. We want a commitment that they are not attempting to do that. We also want to know precisely which grocery items will be affected by the measure. What are the measure's revenue implications? What will be the annual value of transactions affected by the change? What will be the net effect on Treasury revenues? What consultations have the Government had with food and drink manufacturers and with retailers?
We want to be reassured that, as a consequence of the negotiations, the principle of zero-rating food will not be abrogated. We also want to know what evidence there is to suggest that the current tax regime is unduly benefiting that part of the food and drink industry to the detriment of others. Unless we get all those reassurances, we are perfectly entitled to be suspicious of what is going on this afternoon.

Dawn Primarolo: I hope that I shall be able to reassure the House on this modest and sensible measure. There is no extension to foodstuffs that are currently zero-rated. The hon. Member for Lichfield (Mr. Fabricant) can have his Marmite soldiers and drink his Bovril this evening in the sure knowledge that there is no challenge.
While legal issues arising from an appeal to the VAT and duties tribunal earlier this year—but after the Budget—were being examined, it was discovered that a transcription error had been made in the Value Added Tax Act 1994. Throughout the relevant time, VAT has been raised on those products. No new VAT is being imposed and there is no extension. The manufacturers, the Government of the day and their officials believed that VAT on pet foods could be charged and collected, as it


had been since 1973. We collected the tax because that was the position before the transcription error was made in 1994. We now have to correct the law.

Mr. Luff: Is the hon. Lady saying that the Government have collected tax revenues illegally and are now seeking retrospective sanction for having done so?

Dawn Primarolo: No. The items had never been zero-rated. The previous Government supervised the changing of the 1994 Act, when the transcription error occurred. They were fulfilling their legal obligations under the requirements to impose VAT. We are committed to maintaining zero rates on food. They are not affected in any way.

Mr. Letwin: rose—

Dawn Primarolo: I should like to make this point first. The explanatory notes make it clear that the zero-rating of foodstuffs is not affected.
The grouping covers pet foods primarily, but there are certain other preparations—

Mr. Letwin: rose—

Dawn Primarolo: I should just like to deal with this point. The other preparations are extracts of meat, yeast or egg, such as advocaat and yeast products intended for use in home brewing. That was the law as we had all understood it.
I have also been asked whether there is a precedent.

Mr. Letwin: rose—

Dawn Primarolo: I should like to deal with this point and get all the facts on the table before hon. Members work themselves up into a lather again about the problems.
I was asked whether there had been errors before. Unfortunately, there have. The previous Government had to make a correction to the Finance Bill in 1995, because the starting date for earlier changes to bad debt relief was omitted when the provisions for consolidation into the Value Added Tax Act 1994 were made. The measures are not retrospective because—

Mr. Letwin: rose—

Hon. Members: Give way!

Dawn Primarolo: I will give way in a minute. Hon. Members should be patient. It will help to have the facts.
This is not retrospective taxation because the legal liability to tax has not been changed contrary to the expectation of the taxpayer. The taxpayer had been paying the tax.
If the House voted against the motion, it would cause chaos. Manufacturers and the Government believed that the law gave cover. I am sure that a test court case would show the intention of the legislation before 1994, but it is better to correct legislation when an error is found.

Mr. Letwin: I am grateful to the Paymaster General for giving way. That is the point on which I have been

trying to intervene, without being in any kind of lather. The hon. Lady said a moment ago that it had not been illegal to levy VAT during the intervening period when the mistake was in force. Is that not because my hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor) is right and the sixth VAT directive is in force, meaning that in law VAT could be levied on the products? Is this not merely a tidying operation with no effect on the outcome of cases?

Dawn Primarolo: That is my point. There is no change. If we did not make the alteration, the Government could be left open to a loss of revenue, which would be unwise. Any prudent Government would act.
This is a simple proposition. An error was made; taxpayers and the Government have behaved in good faith. The law will now be corrected. There will be no refunds, no additional charge and no increase in food prices for pet lovers. I am sorry that the hon. Member for Rochford and Southend, East (Sir T. Taylor) feels that his time may have been wasted. There is no extension on foods; those are the simple facts.

Question put and agreed to.

Resolved,

That provision (including provision having retrospective effect) may be made in the Finance Bill amending the provisions of Schedule 8 to the Value Added Tax Act 1994 by virtue of which supplies of preparations and extracts of meat, yeast or egg are zero-rated.

DISCOUNTED SECURITIES ETC.

Motion made, and Question proposed, pursuant to Standing Order No. 52(1)(b),

That provision (including provision having retrospective effect) may be made in the Finance Bill amending paragraphs 10 and 13 of Schedule 13 to the Finance Act 1996 and section 92 of that Act.—[Mrs. Roche.]

Mr. St. Aubyn: I rise to point out that, yet again, we have a motion with retrospective effect. In Standing Committee, we raised several objections to the phrasing of clause 61 and others. There was a great deal of consternation among Ministers, and they had to go away and think again. The Government new clauses on Report propose significant changes to the way in which they hope to address the highly technical problem of tax leakage resulting from the current legislation. I should be grateful if the Minister would confirm that.
Before we pass the measure, will the Minister confirm that the retrospective effect will not mean that companies that have honestly, but ingeniously found a way to minimise their tax liability will see an increase in their tax bill? I have no truck with tax evasion, but it is right that businesses should be able to plan their tax affairs with some certainty. Clauses should not be sprung into Finance Bills, retrospectively changing the law, to deny companies exemptions or advantages in the tax system that they legitimately believed that they could make use of. If we breached that principle, we would undermine the rule of law on which the whole tax system is based. If taxpayers feel that the Government will introduce retrospective legislation every time that they find a legal way to use the tax system to their advantage, they will eventually feel that they are unable to challenge the Government through the court of law on the tax system. The costs of doing so


may be great, but we could lose an important constitutional test and a brake on the power of the Executive to raise tax at their whim. That is what is at stake.
Will the Minister confirm that the problems that we highlighted with the original phrasing of the clause, in terms of the ordinary call provisions for securities, and the possible effect of the introduction of a withholding tax are dealt with by the new phrasing of the clause? I look forward to her response.

Mrs. Roche: I am surprised by the remarks of the hon. Member for Guildford (Mr. St. Aubyn), who gave his version of what happened in Committee. It was an interesting version, and there are always many different historical interpretations of what has happened.
In Committee, I said that when we had consulted on this complex proposal, we received representations from the financial sector. It appeared that the way in which the clause had been drawn went too wide and was taking in some matters that we did not wish to be included. Therefore, in consultation with the industry, we made some new proposals and we have had a favourable reception. That is another example of how this Government listen—unlike the previous Government.
I remind the hon. Member for Guildford that the Tory Government tried to introduce this measure, and that this Government, once again, have had to deal with some unfinished business that the Conservative Government were unable to get through.
The hon. Gentleman asked why the resolution was retrospective. Clause 61 was founded on retrospective resolutions, and operates from 15 February 1999, when it was announced—a few weeks before the Budget. In that sense, it is technically retrospective. The Conservative Government did this on many occasions to stop tax avoidance, which was the right thing to do.
If the hon. Member for Guildford wants to honour the pledge of the shadow Chancellor on public spending, making sure that proper tax avoidance measures are in place is the right thing to do. I had hoped that he would give us some credit because we propose to make the clause—which takes effect from 15 February—less wide ranging. As to the other matters that he raised—yes, I can assure him on both those points.

Question put and agreed to.

Orders of the Day — Finance Bill

Not amended in the Committee, and as amended in the Standing Committee, considered.

New Clause 7

FIRST-YEAR ALLOWANCES FOR INVESTMENT IN NORTHERN IRELAND

'.—(1) In section 22 of the Capital Allowances Act 1990 ("the 1990 Act") (first-year allowances), in subsection (3CC) (which restricts the expenditure on machinery and plant for use in Northern Ireland which is eligible for 100 per cent. allowances), after paragraph (b) there shall be inserted "; or

(c) expenditure on the provision of a goods vehicle for the purposes of a trade which consists primarily of the conveyance of goods; or
(d) unauthorised expenditure on the provision of machinery or plant for use primarily in—

(i) agriculture, fishing or fish farming, or
(ii) any relevant activity carried out in relation to agricultural produce, fish or any fish product for the purpose of bringing it to market."

(2) After subsection (3CC) of that section there shall be inserted—

"(3CD) For the purposes of subsection (3CC) above—

(a) expenditure is unauthorised expenditure unless it is authorised, for the purposes of subsection (3CA) above, by the Department of Agriculture for Northern Ireland; and
(b) 'relevant activity' means transportation, storage, preparation, processing or packaging.

(3CE) An authorisation given, for the purpose of subsection (3CA) above, by the Department of Agriculture for Northern Ireland—

(a) may be given either specially (that is to say, so as to apply only to a specified item of expenditure or a specified person) or generally (that is to say, so as not only so to apply);
(b) may, if given generally, be modified by that Department; and
(c) may in any case be absolute or conditional."

(3) In subsection (10) of that section, after "section" there shall be inserted—

"'agriculture' and 'agricultural produce' have the same meanings as in section 6 of the European Communities Act 1972;

'fish' includes shellfish;

'fish farming' means the intensive rearing, on a commercial basis, of fish intended for human consumption;

'fishing' means a trade, or part of a trade, which consists of the catching or taking of fish;

'goods vehicle' has the same meaning as in the Road Traffic (Northern Ireland) Order 1995;".

(4) In section 22B of the 1990 Act (withdrawal of first-year allowance on change of use)—

(a) in subsection (2)(a), for "the period of two years beginning with the date of the incurring of that expenditure" there shall be substituted "the relevant period"; and
(b) after subsection (2) there shall be inserted—

"(2A) In subsection (2) above 'the relevant period' means—

(a) where the expenditure concerned exceeds £3.5 million, the period of five years beginning with the date of the incurring of that expenditure, and
(b) in any other case, the period of two years beginning with that date."

(5) After section 22B of the 1990 Act there shall be inserted—

Disclosure of information in connection with first-year allowances

22C.—(1) No obligation as to secrecy or other restriction on the disclosure of information imposed by statute or otherwise shall prevent—

(a) the Board or an authorised officer of the Board from disclosing to the Department of Agriculture for Northern Ireland (`the Department') or an authorised officer of the Department, or
(b) the Department or an authorised officer of the Department from disclosing to the Board or an authorised officer of the Board,

information for the purpose of assisting the Board in the carrying out of their functions with respect to claims for capital allowances made under section 22 by virtue of subsection (3CA) of that section or, as the case may be, the Department in the carrying out of its functions under that section.

(2) Information obtained by virtue of a disclosure authorised by this section shall not be disclosed except—

(a) to the Board or the Department or to an authorised officer of the Board or of the Department; or
(b) for the purposes of any proceedings connected with a matter in relation to which the Board or the Department carry out the functions mentioned in subsection (1) above."

(6) The preceding provisions of this section have effect in relation to every chargeable period ending on or after 12th May 1998.'.—[Mrs. Roche.]

Brought up, and read the First time.

The Financial Secretary to the Treasury (Mrs. Barbara Roche): I beg to move, That the clause be read a Second time.
In last year's Finance Act, we introduced a measure to give 100 per cent. first-year capital allowances for small and medium-sized businesses investing between 12 May 1998 and 11 May 2002 in machinery or plant for use in Northern Ireland. The legislation does not come into effect until a day to be appointed by the Treasury. This was necessary to allow time to make sure that the measure would not be anti-competitive.
It is now apparent that some modifications are needed to the scope of the measure to bring it into line with competition law. New clause 7 will make the necessary changes. Once made, we expect to receive confirmation from the European Commission that the measure is not anti-competitive. This will allow us to appoint the day and to bring the legislation into effect. Once that is done, the 100 per cent. first-year allowances may be claimed on any expenditure in the qualifying period.
It may be helpful, and for the convenience of the House, if I outline briefly the areas of change. On transport, the 100 per cent. first-year allowances were never intended to apply to expenditure on machinery and plant for leasing or letting, hire cars, long-life assets, sea-going ships, railway assets or aircraft. New clause 7 will expand the exclusion to cover transport assets, such as lorries or containers used in the freight haulage

business. It will not affect the entitlement to allowances on transport assets in other types of business, such as delivery vans of retail businesses, mobile shops or tourist buses.
As for the agriculture and fisheries sectors, the new clause will mean that 100 per cent. first-year allowances will be available only on investments authorised by the Department of Agriculture in Northern Ireland, as compatible with competition law in the Department.
As for large investments, under the normal rules, the 100 per cent. allowance will be clawed back if the asset begins to be used primarily outside Northern Ireland within two years of the expenditure being incurred. For exceptionally large investments, the new clause will extend that claw-back period to five years. The changes are required to ensure that the measure comes within competition rules while retaining the maximum benefit for Northern Ireland businesses.

Mr. Michael Jack: Will the Minister expand on the conflict with competition law, which she used as a generic term? Which competition law is causing the problem?

Mrs. Roche: I am talking about state aids, as the right hon. Gentleman will be aware. Rightly, and understandably, the Commission has an interest in this matter. It has always been the policy of this Government—and, to be fair, of the previous Government—to be vigilant on state aids so that protectionism is not let in by the back door. We must make sure that the measures are compatible.
I commend the new clause to the House.

Mr. David Heathcoat-Amory: It is significant that we have been debating for more than two hours before getting to the Government new clauses. That is because of the wholly unprecedented number of money resolutions that the Government have tabled at this late stage. By definition, money resolutions are tax raising. To have eight tabled at the start of the Report stage shows not only that we have a tax-raising Government and that we have had a series of tax-raising Budgets, but that we now have tax-raising Report stages.
Rightly, we have examined some of the money resolutions, and we can now approach the stage where we can look at the new clauses. I am interested in this one, as it restricts the ability of businesses in Northern Ireland to reduce their tax burden through the use of 100 per cent. first-year capital allowances for small and medium-sized enterprises.
The measure was announced last year by the Government, and was passed in last year's Finance Bill. It has been approved by the House, but we now learn that it was not brought into effect because of possible problems with competition law.
My right hon. Friend the Member for Fylde (Mr. Jack), in an acute intervention, asked exactly what that meant. He got a reply, but I am not sure that the Financial Secretary was entirely accurate. I ask the question rather than make the allegation. It is possible that she was a little disingenuous.
6.30 pm
We know that the 100 per cent. first-year allowance conflicts not with United Kingdom competition law, but with the requirements of the European Union business taxation group, chaired by the Paymaster General, who confirmed in a parliamentary answer that the subject of first-year allowances for businesses in Northern Ireland is being investigated by the group.
If the group concludes that the allowances conflict with the requirements of fairness and tax competition, they could be withdrawn, which is a serious matter. It is time that the Government came clean about the EU group, because the allowances are not the only measure in the Budget that could be hit. For example, the 40 per cent. first-year allowances for small and medium-sized enterprises in the rest of the United Kingdom were debated in Committee upstairs without Ministers mentioning the fact that they, too, are under investigation by the business taxation group.
More recently, I asked how many British tax measures were under review by the group. It took the Treasury nearly a month to come up with the answer, which is surprising, as the Paymaster General chairs the group. Eventually, she confirmed that eight measures were under investigation, including measures relating to the film industry, which, again, we debated in Committee without knowing the full facts; enterprise zones, which should be of interest to Labour Members who believe in industrial regeneration; and the 100 per cent. first-year capital allowances for small and medium-sized enterprises in Northern Ireland.
The House, extraordinarily, is being asked to pass certain tax measures while at the same time a European Union tax committee, chaired by a Treasury Minister, is sitting in secret—the agenda and minutes are not published—and may require those measures to be repealed or withdrawn. This is an important constitutional issue and the House must have an explanation. The Government have agreed in advance to abide by the tax committee's decisions, so it is not an advisory group.
We know that because the matter was debated in 1997 and the Government published an explanatory memorandum. In its report on the matter, the Scrutiny Committee said that
the Government would agree to the code only 'if it intended to honour it'.
The Government have agreed to the code on business taxation, so they must have agreed to honour it. Will the Financial Secretary confirm that it follows that, if the business taxation group rules against the capital allowances for businesses in Northern Ireland, the Government will withdraw them?

Sir Teddy Taylor: Can my right hon. Friend think of any possible reason why the Government should not publish the reports of the code of conduct committee, given that the latest one, published in May, contains a series of additional measures? Is not it an insult to democracy and to all that we are meant to stand for that the Government are agreeing to measures on so-called tax loopholes without the House of Commons or the people being told? Will he invite the Government to publish the most recent report, which I happen to have in my hand because I got it by devious means?

Mr. Heathcoat-Amory: I entirely agree. The House deserves to know what tax measures are being discussed

elsewhere, as it practically came into existence to take the means of taxation away from the Crown or the Executive and put it in the hands of those who are answerable to the electorate. My hon. Friend is seeking to assert an ancient right.
The Government have made much of their commitment to openness and "Your Right to Know". I think that they even plan to introduce a Bill to allow the people to know what is being done in their name. It would be a good start if the Government could tell us what tax measures are under review.
The parliamentary answer to which I referred made it clear that the measures that it lists are drawn only from the group's initial list. As my hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor) said, there are other lists. I believe that some energetic web surfer discovered a list of more than 200 European—not all British—tax measures that are under review by the secret committee chaired by the Paymaster General. Will the Financial Secretary publish a comprehensive list of the British measures?
Will the Financial Secretary confirm that the restrictions in the new clause, which would cut back the scope of the allowances as agreed last year, were introduced in response to fears about the EU committee, so that bringing our measures into line with the requirements of European competition law really means bringing them into line with the requirements of that committee? Why else have the restrictions been introduced? The allowances were announced last year to a great fanfare and passed by the House.
The allowances are being restricted in areas in which the situation in Northern Ireland has got worse, such as haulage. The Government's tax measures on road fuel have made the haulage industry uncompetitive, and the problem is especially acute in Northern Ireland, which has a land border with another member state, so the industry can easily be undermined by lorries using cheaper fuel from the Republic. We know that a great deal of fuel smuggling goes on there; the Government will not even give us an estimate of how much, but we know that the problem is serious and worsening.
The same applies to agriculture and fisheries. Northern Ireland faces the same problems as the rest of the United Kingdom, so the case for restricting allowances there has not been made. We strongly suspect that the restrictions are designed to bring us more in line with the requirements of the EU tax committee.
I have another question for the Minister. The terms of the new clause indicate that the capital allowances for agriculture are to be restricted in a way that is devolved to the Department of Agriculture for Northern Ireland. That is somewhat remarkable, as it means that the power, not only to authorise specific items of expenditure on agriculture, but to specify persons, is to be at the discretion of that department. Officials in that department will be able to decide that one person gets the capital allowance, but that another person does not. That is a remarkable provision for the House to approve: instead of setting out tax liabilities in rules and regulations, we are now devolving that power to the say-so of officials at the Department of Agriculture for Northern Ireland. Perhaps the Minister can tell us why the rules cannot appear on the face of the new clause.
My real point is that we are beginning to see the results of the Government's weakness in respect of European Union tax harmonisation. In 1997, they agreed to a code and they said that they would abide by it. Now, although the Government proudly announced certain tax measures last year and now want to introduce them, those measures are under review by that tax committee. In effect, the judgment of the House on matters of taxation has become subservient to a European Union committee over which we have no control. Those are the facts and we require an explanation.

Mr. Edward Davey: I apologise for not having been in the Chamber for the first minute of the Minister's speech introducing the new clause.
I agree with some of the points made by the right hon. Member for Wells (Mr. Heathcoat-Amory), especially those relating to the secrecy surrounding the group that meets in Europe, because I believe that all the committees that meet in Europe should be far more open than they have been. It is possible that, when the right hon. Gentleman was a Treasury Minister and attended meetings of ECOFIN in Brussels, he pushed for greater openness about the proceedings of that committee, but I doubt that he did so. If I am wrong, I should be more than happy to take an intervention from him. The Conservative Government did not have a good record on pushing for greater openness in Europe, and I hope that the current Government will do a better job in that respect.
I disagree when the right hon. Gentleman questions the purpose of the tax committee, because there is a need to examine how state aid is allocated and whether specific forms of state aid meet the requirements of competition law. Competition law is a bulwark of the single market. It is astonishing that, in the Chamber and in Committee, the right hon. Gentleman has argued continuously against bodies such as the tax committee, given that he is—I assume—in favour of the single market. It is astonishing for the Conservatives to be in favour of free trade and of the single market, but against those mechanisms of the European Union that are designed to make the single market work more effectively, including by abolishing state aid. The Conservatives are supposed to oppose most forms of state aid, so it is astonishing that the right hon. Gentleman does not support the EU in trying to get rid of state aid which has, historically, been used by other EU member states in ways that are to the detriment of British jobs and industry. I should have thought that the ideological position adopted by the Conservatives would lead them to be in favour of the sort of approach embodied in that European committee.
That does not mean that we should not voice concerns about specific measures laid before the House, and new clause 7 did cause me some concern when I read it and the explanatory notes, especially because, as the right hon. Gentleman said, it removes first-year allowances for investment in the road haulage industry. As we heard in earlier debates on the Finance Bill, the road haulage industry in Northern Ireland is in great trouble, because of the differential vehicle excise duties and fuel excise duties charged in Northern Ireland and in the neighbouring country across the land border, the Republic

of Ireland. Now seems an especially inappropriate time to remove allowances, and my questions to the Minister focus on that issue.
6.45 pm
Can the Government think of no other way—for example, through capital allowances or direct grants—to support the road haulage industry in Northern Ireland as it attempts to tackle the problems that are specific to it, rather than generally affecting the mainland road haulage industry? Does the subsection to which the right hon. Member for Wells referred, which would give the Department of Agriculture for Northern Ireland powers to make specific grants, offer a means of enabling the Government and civil servants to provide help to the Northern Ireland road haulage industry? Obviously, it would be limited to that section of the industry that is related to agricultural transportation, but it might offer a means of helping at least one part of the industry.
I accept that rules for the application of tax law should appear in legislation, rather than administrative laxity or freedoms allowing civil servants in departments to hand out allowances for specific expenditures. That is not the best way to proceed. However, in the present circumstances of the Northern Ireland road haulage industry encountering great difficulties, that power—if it can be used in the way I suggest and remain in accordance with competition law—might offer Ministers a means of helping that industry, for example, by helping it to convert to fuel-efficient lorries.
I hope that the Minister will answer my points when she winds up the debate. She should not listen to the protestations of the right hon. Member for Wells in respect of the wider issues.

Mr. Geraint Davies: At this historic time, as we look toward a peace settlement in Northern Ireland, I am sure that the whole House would welcome any extension of preferential treatment in terms of capital allowances that focused on small and medium-sized enterprises in Northern Ireland. The new clause strikes a balance between acting in accordance with competition law and doing too much and risking accusations of providing state aid that distorts competition. The result is that we can promote industrial prosperity in Northern Ireland while abiding by competition law.
The Conservatives' view seems somewhat schizophrenic. On the one hand, they say that we should have nothing to do with the Europeans and their competition law; on the other hand, they are the first to accuse other European countries of giving unfair subsidies that make our industry uncompetitive. Perhaps we should be accustomed to the Conservatives holding such a contradictory position. We all want fair competition and we all want to support peace in Northern Ireland. Offering preferential treatment to SMEs in Northern Ireland offers a way ahead that fits in with European competition policy, which is much to be applauded. I welcome the new clause.

Sir Teddy Taylor: The House should realise what it is about tonight. On 12 May 1998, the Chancellor of the Exchequer announced his intention to introduce 100 per cent. first-year capital allowances for spending by small


and medium-sized businesses on machinery and plant for use in Northern Ireland. That was carefully thought out—the Government did not simply shove the measure on the table and then phone up their friends in Brussels to ask them whether it was fair and reasonable.
As I hope that the hon. Member for Croydon, Central (Mr. Davies)—whose speech was so fascinating—appreciates, although the scheme was carefully thought out before being announced by the Government, it has not yet been activated—it has not happened yet. I am sure that he is having a jolly discussion with the hon. Lady sitting behind him, but I hope that he has heard that simple point. Despite that, and although there has been consultation, the Government are now saying that they got it wrong and will have to change it substantially.
The Government are removing the 100 per cent. first-year allowances for transport assets. Why would they do that? Has the road haulage industry had a wonderful time? Is it subject to special preference? We all know that the road haulage industry has had massive new taxes imposed on it, so why are the Government discriminating against it in this measure?
On agriculture and fisheries, the 100 per cent. first-year allowances will be available only for investments authorised with the Department of Agriculture for Northern Ireland as being compatible. The 100 per cent. first-year allowances will be withdrawn if the asset begins to be used outside Northern Ireland within two years of the expenditure being incurred. How on earth will that be implemented? Will the Government introduce passports for machinery, so that, if machinery is moved from Northern Ireland to, for example, Scotland, they can make a note of that and ensure that the allowance is withdrawn?
Those are extraordinary measures, and we should ask ourselves why there is panic and why legislative changes are being made to bash road haulage and to introduce a passport for machinery to ensure that it is not transferred, even for a few days, from Northern Ireland to Scotland. Frankly, that is nutty.
As hon. Members are well aware, I have never been a great fan of grants and allowances in any form. However, the Government are changing a sensible scheme that was carefully thought out and approved by the House. The scheme is very detailed. It says that, to qualify as small and medium-sized enterprises, businesses have to meet two of the following three tests: they have to have an annual turnover of not more than £11 million; they have to have assets of not more than £5.6 million, and they have to have not more than 250 employees. The miracle men of the Treasury had worked out a reasonable, sensible scheme, and the Government are now introducing these rather strange changes before the scheme has even started. I hope that Members will ask themselves, "Why are the Government doing that?"
The Government are not introducing the changes because they are stupid or nasty, although all Governments can, to some extent, be stupid or nasty. Something has happened or someone has said that they must change the scheme. It is pretty obvious that the Government have been involved in discussions in Europe in secret committees, and that they have not been publishing the resulting papers. A report of the code of conduct group was mentioned in the Treasury Sub-Committee only last week. I said that I had heard that there was a great plan to tell us about unfair tax

discrimination and that there was a report on that. I asked whether it was possible to get hold of that report and I was told "No. Such reports are secret and they are not available."
I have a great friend, a brigadier in Gloucestershire, who can always get secret reports if I particularly want them, so I got that report. I have it in my hand. It is not available to the public. It says that there have been two reports of the code of the conduct committee, which is chaired by the Paymaster General.
One report classified items of tax competition that the committee felt were unfair, unreasonable and wrong. Four proposals were made. The first related to the film industry. The poor old film industry had better watch out, because it is going to get clobbered. The second related to tax relief on shipping, and I warn that industry that it, too, will be clobbered. The third related to enterprise zones and the fourth to first-year capital allowances in Northern Ireland. Those were identified by that secret EU committee as one of the flaws in the tax arrangements.
I am sure that you will rule me out of order if necessary, Mr. Deputy Speaker, but what worries me is the contents of the second report of that committee, which are alarming and terrible. When they become public, people will be upset.
As you know, Mr. Deputy Speaker, I had rows with the previous Government just as I do with this Government. Why the blazes will they not tell the people the truth about what is happening in Brussels? Why the blazes will they not publish the reports as they emerge? I am sure that the Government will say that the reports do not require them to take action. We all know what is happening with tax harmonisation and we all know what is being forced on us. We all know what is coming in by the back door, and it is time that people told the truth. I am sure that the Government are exactly the same as the previous Government, and they should tell people what is happening. I ask the Minister why those reports cannot be published. Why cannot the report for which I asked, which emerged in May, be published? Why cannot the Treasury Sub-Committee get hold of it?
I am sorry, Mr. Deputy Speaker, if I am getting bad-tempered in my old age, but what is happening in the House of Commons is appalling. People are not being told what is happening. The Government are making announcements and we are debating measures about which we can do nothing. Although there may be a case for throwing away our democracy, we should be consulted.

Mr. Geoffrey Clifton-Brown: Does my hon. Friend agree that there is a parallel between this case and the publishing of the minutes of the Bank of England Monetary Policy Committee? If those minutes can be published, why cannot the minutes of the committees to which he refers also be published?

Sir Teddy Taylor: It is interesting to read the minutes of the Monetary Policy Committee, and I agree with my hon. Friend that the more we publish, the better. We do not want secret information but, if the Government are saying that there are tax mistakes or unfair forms of taxation, Parliament and the people should be told.


Part of the latest report concerns the Channel Islands, and, frankly, I should not like to have any money invested in the Channel Islands now—

Mr. Deputy Speaker (Sir Alan Haselhurst): Order. I have given the hon. Gentleman considerable leeway. He is, of course, entitled to make his point about the new clause, but he is not entitled to debate the generality of his argument about secrecy and openness. The new clause concerns first-year allowances for investment in Northern Ireland, and his remarks must relate to that.

Sir Teddy Taylor: I am sorry, Mr. Deputy Speaker. I mention discussions in Europe only because the report specifically says that our grants to Northern Ireland industry are considered wrong and unfair by the code of conduct committee. If we cannot mention that, I do not know why we are in the House of Commons at all. It may be said that the reports are not public and that people cannot get hold of them, but they exist and they arise from meetings that have taken place.
I am very sorry that, for the first time since I came here in 1964—which was a long time ago—I have had a dispute with the person in the Chair. It is not my practice to fall out with those who are in the Chair. However, something very nasty and wrong is happening, and I find it appalling that the Minister can say that the Government have suddenly decided, for no apparent reason, that the allowances that they agreed only last year and that have not yet been introduced must all be changed.
The Government will no doubt say that they are not legally obliged to implement the conclusions of the code of conduct committee, but that committee regards four specific items as contrary to tax harmonisation, and we do not know about many of its other conclusions, so, although I shall achieve nothing in relation to the new clause and I shall probably fall out with more people than ever before, I urge the Government, at the very least, to start publishing the committee's reports. They know that those reports will, in any event, become public. I have the latest report, which has not yet been published, and I am sure that someone else will get hold of the next one.
Why cannot Parliament be told what the Government are discussing? Why cannot we be told what agreements are being made on taxation? Having spent 35 years in the House and discussed many matters, I find it sad that people are not being told about such agreements and that we spend a great deal of time discussing things that we can do nothing about. We are—inadvertently, I am sure—being misled about the origin of the changes introduced in the new clause. I hope that other hon. Members will ask themselves why the Government suddenly want to change a detailed scheme that was introduced in 1998, before it has even been implemented. There is something wrong in that, and I hope that my colleagues will pick up on that.

7 pm

Mr. Jack: This is an intriguing new clause. I hope that the Financial Secretary will be able to shine a little light into what, from the speeches so far, seem to be increasingly murky waters.
One of the things that worries me in overall terms is that, as my hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor) said, something was

introduced after careful thought in order to confer a tax advantage on one part of the United Kingdom, yet, for the reason that the Minister described in response to my intervention—it offends competition law—it is being changed. She also prayed in aid state aids. I am now less clear about the matter than I was before she replied. If the Financial Secretary will do me the courtesy of listening, I should like to ask her why, for example, 100 per cent. scientific research allowances that are available in Northern Ireland are not affected by the proposals.
In general, two important tax principles are raised by the new clause. One is whether giving any 100 per cent. allowances contravenes the currently unspecified competition laws. The second is whether a sovereign member of the European Union choosing to grant a tax advantage to one area within its own boundaries runs foul of our position in the EU.
I have always understood that one of the principles that one operates in tax in this area is that of fiscal competition. My understanding is that, up to now, a country wishing to confer certain capital allowances for certain purposes on certain tax regimes has never been challenged; we may have whatever allowances we like. It is difficult to answer why we appear to be corrupting that advantageous position by the new clause. The Financial Secretary must spell out very clearly how competition law interacts with the sovereign right of the UK to levy its own tax rates.
We are facing harmonisation by the back door. The Financial Secretary winces, but she will know that, when I was in the Treasury, all our EU partners—certainly the major players who valued independence of their tax-determining regimes—would have fought tooth and nail the case of Hoechst v. the European Union on a matter connected with corporation tax because they did not want somebody else determining their tax law.
If, as my hon. Friend the Member for Rochford and Southend, East says—he and I have not always agreed on matters European—there has been a change of Government policy, let us have it out in the open. It is no use the Financial Secretary shaking her head. One of the values of these debates is that we may tease out any new interaction between competition law and tax law, with which the new clause deals.
I should like a specific answer to the question how, for example, Northern Ireland can benefit from a 100 per cent. scientific research allowance but cannot benefit from the original proposal. Will the Financial Secretary spell out the competition laws that are corrupted by the proposed state aid?
We know that one country may confer a benefit through the tax system, but another may do so by another mechanism. It is certainly of interest to those in the Department of Agriculture for Northern Ireland to know of the disquiet among Northern Ireland pig producers over the moneys that were passed to French pig producers in connection with difficulties faced in the French industry. The £150 million that the French Government passed to their pig producers was supposedly to deal with restructuring their industry. The French Government may have decided to deal with that matter via a tax allowance. Similarly, we may have responded by giving our pig industry a tax allowance for various matters such as welfare.
Has there been any attempt in framing the new clause to ensure that there is equivalence of help across the EU, given that we may choose to help an industry via tax allowances, but another member state may deal with such a situation by another method? I am now more confused than ever in understanding how there can be parity of competition. The example that I quoted is not hypothetical; it a real issue that affects pig producers not just in Northern Ireland but in the United Kingdom generally.
It might have been helpful if the Financial Secretary in her opening remarks had compared and contrasted capital allowances north and south of the border. By and large, the use of assets, particularly agricultural assets, is the point of comparison. I would have liked to have known that we were not disadvantaging ourselves in Northern Ireland by the proposed measure.
I turn to an aspect on which my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) touched in his pertinent and perceptive comments. In tax terms, this is a highly unusual measure. DANI is to make statements on what qualifies for tax allowances. Can the Financial Secretary tell me whether those judgments are challengeable via the commissioners of the Inland Revenue? It strikes me that we have a one-way street. DANI will be able to make judgments—there is no definitive list in the new clause—but there appears to be no mechanism for challenging them. The only way in which taxpayers may normally deal with such circumstances is to challenge an Inland Revenue ruling through the commissioners. I am not clear whether that mechanism will be open to people in this matter.
The proposed subsection (3CE) is even more mysterious. It says that DANI authorisations
may, if given generally, be modified by that Department",
and
may in any case be absolute or conditional.
Does that mean that DANI, or someone else giving an interpretation of the new clause, will be allowed a second bite at a ruling? It sounds to me as if some conditional ruling could be given, hinting that an allowance might be included, but subsequently modified or omitted. That is a recipe for, to say the least, a lack of clarity and certainly a lack of precision in operation. I, for one, would like some clarification.
I do not understand how a fiscal activity puts us in contravention with competition laws when we already have an ability to set sovereign rates of tax as we choose. I underscore the importance that I attach to being given clear explanations of why we thought that the legislation as originally drafted was all right, but we are now told that it must be modified by new clause 7.

Mrs. Roche: This has been an interesting debate. If one had heard the opening remarks of the right hon. Member for Wells (Mr. Heathcoat-Amory), one would have thought that the Conservative party was in favour of first-year capital allowances. However, the right hon. Gentleman neglected to point out that, in 1984, Lord Lawson, then Conservative Chancellor of the Exchequer, phased out 100 per cent. first-year allowances.
Of course I understand the speech made by the hon. Member for Rochford and Southend, East (Sir T. Taylor); I assure him that I have a great regard for him and have no intention of falling out with him. However, I want to

make it clear to all right hon. and hon. Members who have spoken that, although the Northern Ireland measures were notified to the code of conduct group that is chaired by my hon. Friend the Paymaster General, we do not believe that they represent harmful tax competition. We are considering not that group, but state aids. I point out to the right hon. Member for Fylde (Mr. Jack)—in the gentlest possible terms—that I sometimes wonder whether we inhabit parallel Treasuries. The state aid rules were in place when we joined the EU. Any aid, including fiscal aid, can be found to be a state aid. That has always been the case; it was certainly the case when the right hon. Gentleman held the position of Financial Secretary to the Treasury.

Sir Teddy Taylor: As the hon. Lady has suggested that the Government may not have reported this matter to the code of conduct committee, will she ask her officials to read page 63 of the committee's report, published on 25 May, reference 8231/99? The report gives the clear impression that the matter was one of a small number of alleged, harmful tax competition measures presented to the committee by the UK Government. I realise that Ministers sometimes do not see such reports, but it is there in black and white.

Mrs. Roche: I am grateful to the hon. Gentleman for that intervention, but perhaps he did not hear me correctly. I said that the matter had been notified to the committee. However, we are dealing not with that group, but with the normal rules on state aids, and I shall deal with that during my remarks.

Mr. Heathcoat-Amory: The issue is not whether the matter was notified to the committee, but whether the committee is investigating it as potentially harmful to tax competition. We submit that it is the latter; the matter is under review and hence may be withdrawn by the Government, under the assurance that they have already given that they would abide by the outcome of the committee.

Mrs. Roche: The right hon. Gentleman is entirely wrong; the premise of his speech was wrong. It is not the code of conduct group that is at issue, but state aids. I realise that the right hon. Gentleman views that group as a vast conspiracy. Let me allay his fears. I am afraid that he goes home at night wondering whether the code of conduct group is following him. With my long experience as a constituency Member of Parliament, I have regularly had to reassure my constituents as to such fears. I am anxious to reassure him that it is not a problem.
When we introduced the measure, we said in our press release that it would need to be cleared with the European Commission as a potential state aid. Could we have been more open than that? It was clear from the start. State aid rules arise within the framework of Community competition policy and have a legal basis in the provisions of the treaty of Rome. The provisions make illegal any non-approved aid given by a member state in any form that distorts, or threatens to distort, competition by favouring certain businesses or regions, or the production of certain goods—that has always been in the treaty. The EC enforces state aid rules and approves certain state aids that are compatible with the common market.
In my introductory remarks, I pointed out that the Government support a tough stance on state aid. We have consistently supported initiatives both to tighten the state aid rules and to improve their implementation, with the overall aim of reducing distortions in the single market and of improving competitiveness in Europe. I think that the hon. Member for Rochford and Southend, East acknowledged that in his remarks. We introduced the 100 per cent. first-year allowances and the enabling legislation last year, to give a clear signal of our support for new investment in Northern Ireland. That is what it was all about. As we made clear in the press release, we knew that we should need to clear the measure with the Commission before it could be brought into effect.
I want to spell out that there would have been no point in restricting the scope beforehand. As the House is aware, the state rules are complex, and subject to negotiation. We bid high, knowing that we might have to compromise and settle for less at the end of the day. However, we rightly wanted to get the best possible deal for small businesses in Northern Ireland—as any Government would want to do. Given recent events, I am sure that the House is united in wanting prosperity for Northern Ireland.

Mr. Clifton-Brown: I have listened carefully to the Financial Secretary's remarks. She pointed out that the state aid rules are extremely complicated. Indeed, the European Court does not operate on the basis of precedent like our own courts; it can overrule its previous decisions. It seems, therefore, that DANI will have an impossible job in trying to judge, at the margins, whether those decisions come under the state aid rules. It will surely always have to rule against the decisions coming under those provisions. Will the hon. Lady explain how DANI will be able to make decisions?

Mrs. Roche: When one is dealing with matters that are the subject of debate within the EU, such as agriculture, of course one needs tight rules. However, I am sure that the hon. Gentleman will agree that the Department is expert in such matters. When the rules are applicable, we want businesses to take advantage of them.
The road haulage sector was mentioned. There will be limited impact on hauliers, because most road haulage in Northern Ireland is cross-border or international, and hence would not have met the condition in the provisional measure that assets must be used primarily in Northern Ireland. The new clause excludes only vehicles and containers from the scope of first-year allowances; the road haulage sector will still be able to claim 100 per cent. first-year allowances on other assets. I know that that will be of interest to the industry.
Under the treaty of Rome, there are strict rules on state aids for agriculture; that is why the provisions relating to DANI are included. However, there will be a right to go before the Commissioners.
The new clause is extremely sensible; we have tried to achieve the best possible deal for businesses in Northern Ireland. I commend it to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 15

OIL TAXATION: QUALIFYING ASSETS

'.—(1) Subsection (2) below applies where—

(a) an asset which is not a mobile asset is a qualifying asset for the purposes of the Oil Taxation Act 1983 in relation to a person ("the taxpayer") who is a participator in an oil field ("the field");
(b) tariff receipts or disposal receipts of the taxpayer which are referable to the asset are attributable to the field for a chargeable period ("the earlier period");
(c) receipts of the taxpayer which are referable to the asset for a subsequent chargeable period ("the later period") would not, apart from this section, be tariff receipts or disposal receipts attributable to the field for that period as a result of—

(i) the taxpayer's ceasing to be a participator in the field; or
(ii) his becoming a participator in another oil field; and


(d) not more than two chargeable periods intervene between the earlier period and the later period.

(2) The Oil Taxation Acts shall have effect, in relation to the later period and any subsequent chargeable period, as if—

(a) receipts of the taxpayer which are referable to the asset for the period concerned were tariff receipts or disposal receipts attributable to the field for that period; and
(b) in a case falling within subsection (1)(c)(i) above, the taxpayer continued to be a participator in the field.

(3) Subsection (4) below applies where—

(a) an asset which is not a mobile asset is a qualifying asset for the purposes of the Oil Taxation Act 1983 in relation to a person ("the taxpayer") who is a participator in an oil field ("the field");
(b) tariff receipts or disposal receipts of the taxpayer which are referable to the asset are attributable to the field for a chargeable period ("the earlier period");
(c) in a subsequent chargeable period ("the later period") the taxpayer disposes of—

(i) the asset; or
(ii) an interest in the asset,

to another person ("the transferee") in circumstances such that section 7 of the Oil Taxation Act 1983 does not apply to the disposal; and
(d) not more than two chargeable periods intervene between the earlier period and the later period.

(4) The Oil Taxation Acts shall have effect, in relation to the later period and any subsequent chargeable period, as if—

(a) receipts of the transferee which are referable to the asset for the period concerned were tariff receipts or disposal receipts attributable to the field for that period; and
(b) the transferee were a participator in the field.

(5) Subject to subsection (6) below, any reference in this section to receipts of any person which are referable to the asset for a period is a reference to any sums which—

(a) are received or receivable by that person in that period in respect of the use of the asset, or the provision of services or other business facilities of whatever kind in connection with its use; or
(b) are received or receivable by that person in respect of the disposal in that period of the asset, or an interest in the asset.

(6) In a case falling within subsection (3)(c)(ii) above—

(a) any sums which are received or receivable by the transferee otherwise than by virtue of his acquisition of the interest shall not be regarded for the purposes of subsection (4) above as receipts of his which are referable to the asset for any period; and


(b) for the purposes of paragraph (a) above, such apportionments shall be made as may be just and reasonable.

(7) This section shall be construed as one with Part I of the Oil Taxation Act 1975; and in this section "the Oil Taxation Acts" means—

(a) the enactments relating to petroleum revenue tax (including this section);
(b) Chapter V of Part XII of the Taxes Act 1988 (petroleum extraction activities); and
(c) sections 62 to 65 of the Finance Act 1991 (oil industry)

(8) Nothing in this section shall be taken to affect the meaning of "participator" in paragraph 4 of Schedule 2 to the principal Act.

(9) Subject to subsection (11) below, subsection (1) above applies where—

(a) the disposal by virtue of which the taxpayer ceased to be a participator in the field; or
(b) the acquisition by virtue of which he became a participator in the other oil field,

was made on or after 1st July 1999.

(10) Subject to subsection (11) below, subsection (3) above applies where the asset, or the interest in the asset, was disposed of on or after that date.

(11) Neither subsection (1) nor subsection (3) above applies where the disposal or acquisition concerned was made pursuant to an agreement which was made before 1st July 1999 and either—

(a) the agreement was not conditional; or
(b) the agreement was conditional and the condition was satisfied before that date.'.—[Mrs. Roche.]

Brought up, and read the First time.

Mrs. Roche: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Mr. Michael Lord): With this, it will be convenient to discuss the following: Government new clause 16—Petroleum revenue tax: instalments.
Government new clause 17—Business assets: roll-over relief.
New clause 19—Offshore oil and gas: roll-over relief—
'.—(1) Section 193 of the Taxation of Chargeable Gains Act 1992 is hereby repealed with effect from 6th April 1999.
(2) In section 155 of the Taxation of Chargeable Gains Act 1992 (classes of assets for the purposes of roll-over relief) after Class 8 there shall be inserted—

CLASS 9

A licence under Part I of the Petroleum Act 1998 or the Petroleum (Production) Act (Northern Ireland) 1964.

This section applies to all licences (or interests in them) disposed of on or after the 6th April 1999.".'.

Government amendment No. 35.

Mrs. Roche: The new clauses and the amendment relate to the taxation of North sea oil and gas activities. New clause 15 prevents the avoidance of petroleum revenue tax—PRT—that could occur if tariff income, which was attributable to a PRT-paying field, were shifted to a non-PRT-paying field.
New clause 16 will maintain the monthly flow of PRT receipts from companies which, mainly as a result of new clause 15, will be participators in a PRT-paying field, although they will have no interest in the oil and gas produced by that field.
New clause 17 and the related amendment No. 35 extend capital gains roll-over to UK oil licences. That change will make it easier for the oil industry to rationalise its holdings of North sea oil licences. This will allow more scope for cost cutting and more aggressive development of new prospects.
There is evidence that some oil companies are considering restructuring their interests in North sea oil and gas fields. Due to the existing rules for charging PRT on tariffs received for the use of pipelines and other North sea oil assets, a restructuring of assets can lead to tariffs being shifted, for PRT purposes, from the current chargeable field to a different field.
Where the tariffs are currently attributable to a field that pays PRT, there will be an effective PRT charge on the tariffs. That PRT would be lost if the tariffs were shifted to a field that did not pay PRT. There is no justification for that loss of PRT, particularly as it would create a mismatch between the effective PRT relief already given in the PRT-paying field on expenditure on building the assets and the lack of an effective PRT charge on future tariff income.
New clause 15 prevents that PRT loss by ensuring that, where a restructuring would lead to a change in the field to which tariffs are attributed for PRT purposes, the tariffs will continue to be attributable to the current field. In addition, if the owner of the tariff-generating assets would not, following restructuring, be a participator in the field to which tariffs remain attributable for PRT purposes, he will be deemed to be a participator in that field. That will ensure that PRT can be charged in that field on the tariffs that are attributable to it.
New clause 15 is aimed at retaining the current PRT charge on tariffs which could be lost due to the restructuring of companies' interests in North sea oil and gas fields, but it should not prevent restructuring of these interests. Where there are good commercial reasons for the restructuring, new clause 15 should not prevent the companies from going ahead with it.
The total tax potentially at risk from companies being able to shift tariffs from PRT-paying fields to non-PRT-paying fields is about £100 million per year. New clause 15 will protect those tax receipts.
New clause 15 has been introduced at this stage due to the evidence that has very recently come to light about some companies considering the restructuring of their interests in North sea oil and gas fields in a way that would have led to a loss of PRT on tariff income. To protect that tax, we have had to act very quickly.
One effect of new clause 15 is that there will be more companies that are participators in a North sea oilfield but that do not own an interest in the oil produced.
PRT, as the House knows, is paid by monthly instalment. The amount of the instalment is based on the PRT liability for the previous period, and an adjusting payment or repayment is made, two months after the end of each chargeable period, to take account of any underpayment or overpayment of PRT for the current period. Where a participator in a field has not delivered or appropriated any oil in any month, he can withhold the PRT instalment that is due in the following month. That is because an oil company that has received no cash flow from the field in the previous month may not have sufficient cash to pay its PRT instalment.
Companies that are deemed to be participators by new clause 15 will be able to use that rule to withhold all PRT instalments, given that, as they have no interest in the oil produced by the field, they will never have received oil in a previous month. But there is no justification for allowing a company to withhold instalments if the company has received tariff income in the previous month. New clause 16 therefore ensures that a PRT instalment for a month cannot be withheld if the participator has any tariff receipts that are received or receivable in the previous month. New clauses 15 and 16 therefore aim to protect the Exchequer from the loss of tax that would arise from tax avoidance.
New clause 17, on the other hand, extends a relief—roll-over relief—to gains that oil companies make on the disposal of UK oil licences. Roll-over relief allows a business to sell one business asset and acquire another without facing an immediate capital gains tax charge. By deferring the tax charge, the relief helps reduce the effect of tax on companies' investment decisions.
UK oil licences were removed from the scope of roll-over relief in 1987. As a result, if a company sold its interest in a UK oil licence, it was liable to an immediate tax charge on any chargeable gain that arose. That charge was levied even if the proceeds of the sale were reinvested in another UK oil licence.
Our recent discussions with oil companies have revealed that the North sea oil industry has changed significantly since 1987. There is now far more emphasis on developing mature fields, maximising the use of existing infrastructure and managing projects efficiently. In that context, the absence of roll-over relief is causing problems for companies as they seek to rationalise and consolidate their North sea interests. It is now no longer appropriate to deny roll-over relief on UK oil licences.
New clause 17 therefore repeals the 1987 legislation that excluded UK oil licences from the scope of roll-over relief. The House will be pleased to know that UK oil licences will now be put on a similar footing to most other business assets and qualify for roll-over relief. Amendment No. 35 is consequential: it includes the repeal within the list of provisions in the repeals schedule of the Finance Bill.
I hope that this news will be greeted very warmly by both sides of the House; it certainly will be by the industry. I commend the Government new clauses and the amendment to the House.

Mr. Quentin Davies: The hon. Lady intoned her brief like an orthodox priest intoning a liturgy in Church Slavonic which he did not understand and did not expect his audience to. She does much less than justice to the two measures that the Government are proposing. They are quite different from one another.

Mrs. Roche: As a member of the United Synagogue, I hope that the hon. Gentleman will rephrase that; I would hate him to get me into any trouble.

Mr. Davies: The hon. Lady is proposing five new measures. They are, in fact, about two quite different subjects. The first two—new clauses 15 and 16—deal

with a PRT issue, and the subsequent three measures deal with a capital gains tax issue. It would be sensible to separate the two.
On the first group—new clauses 15 and 16—we have no problem in principle with a measure that is obviously designed to prevent avoidance of PRT. Let us say that a company has an asset that has benefited from PRT relief in its purchase or construction. It then gives up its interests in the production of a field, but maintains that tariff-generating asset to service the field. Under present rules, that tariff-generating asset could be allocated to a non-PRT field and so, whereas the asset had benefited from PRT reliefs in the past, the revenues generated by it would not be subject to PRT. In so far as new clause 15 restores symmetry in that respect and prevents the loss to the Exchequer of avoidable—I believe unjustly avoidable—PRT, we are very happy with it.
New clause 16 deals with the consequential case: if a company has given up its interests in the production of a field, by definition it has no production so, under the rule that says that if it has no production for two quarters it does not pay PRT, it would be relieved of paying PRT for ever. I take it that the hon. Lady, in conceiving these two new clauses, had in mind something like a gas or oil pipeline that services a number of fields and could, by this method, without new clause 16, be switched from a PRT field to a non-PRT field.

Mrs. Roche: indicated assent.

Mr. Davies: I see that the hon. Lady endorses my interpretation. However, I would like to ask her, because it is an important point, exactly what type of assets would be involved. I take the pipeline to be a clear case in point. I see that the second line of new clause 15 excludes mobile assets. Clearly, something like a mobile drilling rig would be a mobile asset. However, what would be the position of a floating production platform? Could such a platform have benefited from PRT relief when it was installed in a PRT field? If it is shifted to another field, will it generate revenues free of PRT? I do not know whether the Financial Secretary is listening to my question but it is an important one. The House deserves an answer to it and we look forward to that.
7.30 pm
I ask the hon. Lady to be precise with the definition of assets. She was not precise in her speech, and nor were the Government in their explanatory notes. I have suggested pipelines but we want to know beyond that what types of asset would be affected. That having been established, I think that in principle the Opposition would be happy to accede to the new clause.
When I read new clause 17, I naturally thought, "Hurrah!" What is the new clause? Of course, the Government would not tell us. The Financial Secretary has not mentioned it. New clause 17 represents the Government bringing forward a provision to deliver exactly the effect for which we have been lobbying. Our new clause 19 is designed to produce exactly the same effect. It is probable that the Government heard from the industry—we consulted it on these matters last week—that we were bringing forward a new clause. No doubt the Government thought, "Right, we shall trump the Conservatives. After all, we will do the right thing ourselves."
The Financial Secretary is clearly embarrassed about this. If not, she would have mentioned the Opposition's new clause in her introductory remarks. She managed to skate over the fact that there are two new clauses on the amendment paper that would have the same effect. Both would achieve by different means exactly the same effect.

Mrs. Roche: rose—

Mr. Davies: The hon. Lady has been rumbled and I give way.

Mrs. Roche: The hon. Gentleman has been in the House rather longer than me. However, I did not think—no doubt I shall be corrected—that it was my job when I opened the debate to speak to the Opposition's new clauses and amendments. I might be wrong, but I thought that I would leave that to the hon. Gentleman and others.
Despite all the bluster that we have heard from the hon. Gentleman, I said that the Conservative Government had removed the relief in 1987. I am extremely glad that the hon. Gentleman has come around to our point of view, but it is rather late.

Mr. Davies: The hon. Lady's attitude is astonishing. First, she is found guilty of plagiarism, and tries to hide the fact. Secondly, she introduces the Government's new clause while trying to hide from the House the fact that there is an alternative on the amendment paper which addresses the same issue but suggests a different response. My greatest suspicions are aroused by the hon. Lady's behaviour. Obviously she did not feel confident enough of her solution to the problem to want to refer to the Opposition's solution. If she thought that her solution was better and ours was weaker or less adequate than her own, she would have been delighted to speak to our new clause to explain why the Government's new clause was better. However, she did not do that.
Tonight, the House has a three-way choice. First, it can decide to do nothing and leave the present regime in place. Secondly, it can accept the Government's proposal to grant roll-over relief to North sea licences. Thirdly, it can accept the Opposition's proposal to grant North sea roll-over relief to North sea licences. The two proposals are very different.

Mr. Edward Davey: If the Government are being as opportunistic as the hon. Gentleman seems to be alleging, surely they would have done this before the Scottish parliamentary elections.

Mr. Davies: I do not think that the Government have been particularly clever in their handling of the Scottish parliamentary elections, which is why other parties did so well, to the Government's great surprise. I am not surprised that they got their tactics wrong for that one as well, as the hon. Gentleman suggests.
We have had this situation before, and it has done great damage to the country. The Conservative party has come up with a solid proposal. It is a well-thought-through, viable and sensible proposal that is very much in the national interest. The Labour party, not to be outdone, and out of sheer machismo or pique, has decided to destroy what the Conservative party put in place when we were

in government, or to pretend or attempt to neglect, as we have seen this afternoon, the proposals that we are putting forward in opposition, in favour of their own.
There was a striking example of that over the past few months with the destruction of personal equity plans and tax-exempt special savings accounts, which were great successes. The Government could not bear the fact that those scheme were great successes and that people were saving more money.

Mr. Bob Blizzard: Will the hon. Gentleman give way?

Mr. Davies: I shall give way to the hon. Gentleman in a moment. He must learn patience.
The Government could not bear the idea that these schemes were great successes and that household saving was increasing so well through PEPs and TESSAs. Against that background, they had to introduce their own scheme. The independent savings account is full of holes, full of shortcomings and badly thought through. Of course, it went quite wrong.

Mr. Deputy Speaker: Order. I am sure that the hon. Gentleman knows that he is straying way beyond the terms of the new clause. Perhaps he will return to the matter in hand.

Mr. Davies: Of course, Mr. Deputy Speaker, I will not say any more about PEPs and TESSAs versus ISAs. However, I think that the analogy is a fair one. We have a choice between a Conservative proposal and a Labour proposal. What is more, we have the Labour Government trying to pretend that the Conservative proposal does not exist. The Labour Government are running away from the opportunity to explain the merits of the two proposals and to defend their own. It appears that they are not capable of criticising our proposal.

Mr. Blizzard: The hon. Gentleman is trying to claim credit for a Conservative proposal. However, when I argued the point during Treasury questions, no Conservative Member rose to continue to press it. When I asked my hon. Friend the Minister for Energy and Industry during Trade and Industry questions to take up the point, again no Opposition Member intervened in support. During the meetings of the all-party group, of which I am the chairman, no Conservative Members have pressed the case. How can the hon. Gentleman square reality with what he is saying now?

Mr. Davies: If the hon. Gentleman is dissatisfied with an answer that he receives during parliamentary questions, he must take up the matter with the Ministers concerned. It is Labour Ministers who are in a position to give answers. The hon. Gentleman has scored something of an own goal or has aimed a shot at his own side.
The difference between the two approaches is quite significant. However, we both appear to have the same stated aims, just as with savings schemes, which I must not mention—but we both apparently want to increase savings. The Conservative scheme or schemes delivered that and Labour's did not. Indeed, the Labour scheme delivered a great reduction in savings. In this instance,


we again have the same aims. We both agree that it would be desirable to remove any tax obstacles to greater trading of North sea assets.
It is quite natural that at the beginning of the exploitation of a new field, such as the North sea, the risks are high. When licences are being bid for, those risks will be syndicated extensively so that there will be many participations. As fields become more mature, it is natural that there should be trading of those assets, shares and licences, and that there should be fewer holders. In many instances such restructuring can lead to economies of scale, which are extremely desirable.
Apparently we are all at one on the objective. That is certainly the Opposition's position. We believe that roll-over relief should be provided for North sea assets, as it is for many other business assets in this country. The question is how best to get there. We decided to get there in the most direct and straightforward fashion, and that was by saying, "We already have eight classes of business assets which qualify for roll-over relief, so we shall create a ninth." The eight classes have proved to be quite robust. There has been no difficulty at all in obtaining roll-over relief. There has been no ambiguity—and, to my knowledge, no court cases—about businesses in those eight established classes getting roll-over relief.
The sensible step would be to add a ninth class as we have done in new clause 19. What is wrong with that approach? The Financial Secretary did not attempt to argue that there was anything wrong with that approach, and I draw some comfort from her silence. That approach was evidently so unexceptionable that the hon. Lady, who is pretty combative in her way when she wants to be, gave up at the thought of trying to take exception to it. We can take comfort from the proposal that we conceived and tabled.
The hon. Lady's proposal, new clause 17, takes a different approach—a more complicated and less certain approach, which is much less sensible. It knocks out the provisions of the Taxation of Chargeable Gains Act 1992 that explicitly excluded North sea assets from benefiting from roll-over relief. The Government's new clause would restore the status quo ante—the status quo before 1992. The hon. Lady either has not done her homework, or she is being less than frank with the House by not mentioning that. She tried to skate over a material aspect of her new clause. The problem with re-establishing the status quo that existed before the 1992 Act is that that state of affairs was uncertain and unsatisfactory.
It was possible to argue then, and it had been argued before 1987, that North sea licences amounted to a claim on the continental shelf. The continental shelf is land—indeed, it was defined by the 1958 Geneva convention on the continental shelf, and confirmed by the 1982 law of the sea convention, as the extension of the land of a coastal state under the waves, so to speak.
The claim was made before 1987, not unreasonably but by no means with unambiguous certainty, that a licence was a claim on land, and that roll-over relief should therefore be provided, because land that was being exploited by the business that held the licence should qualify for roll-over relief under class 1, whereby land occupied for a commercial purpose benefits from roll-over relief.
The trouble was that that was not unambiguous. So uncertain was it that the Revenue challenged that interpretation, which gave rise to the famous case of RTZ v. Ellis in 1987, in which the Revenue argued that an area was not land and RTZ claimed that it was. As I recall, the matter was referred to the special commissioners, who decided in favour of RTZ. The Government of the day decided to legislate before the matter reached the High Court.
In other words, the jurisprudence was never established before the statute of 1987, which was replaced by the 1992 statute that the Government want to repeal. By definition, a return to the status quo ante would be a return to a state of ambiguity that was never resolved, and which was the basis for extremely expensive investigation and much doubt on the part of investors, businesses and all those involved in the oil industry.
7.45 pm
That would be a foolish way of trying to resolve the problem. I want to hear from the hon. Lady why she decided to resolve it in that way, and why, as she has taken up our initiative to grant roll-over relief to North sea assets, if it was for reasons other than machismo or pique on her part, she did not accept our way of doing that. The House deserves and will require such an explanation.
If the hon. Lady does not want to withdraw new clause 17 and accept new clause 19, which would be the best way of resolving the problem, I suggest that she makes a clear statement to the House now that the Government interpret the law prior to 1992 to mean that the continental shelf counts as land for the purposes of class 1 roll-over relief. If she says that, it may have some force in the courts if the matter is subsequently litigated.
However, I regard that as second best. It would be far better for the Government to accept our proposal and to go down that much surer and safer avenue. If the hon. Lady wants to carry the Opposition with her, she must go down one of those routes. So that the matter is absolutely plain, I repeat that she should accept new clause 19—in any event the House deserves an explanation of why she does not consider that a better route—or she should make sure that, if she goes back to the status quo before 1992 or the first legislation on the subject in 1987, the ambiguity that then prevailed is not restored. The only way in which she can do that is by making that declaration now from the Treasury Bench.

Mr. Frank Doran: I welcome the measure presented by the Government and the speed with which it has been introduced. Before I develop that point, I shall comment on the speech that we have just heard from the Opposition Front-Bench spokesman, the hon. Member for Grantham and Stamford (Mr. Davies).
It is always endearing to hear a Front-Bench spokesman for the Conservative party pretending that the Conservative party still matters. The gist of the speech of the hon. Gentleman seemed to be that the Government were ignoring the new clauses tabled by the official Opposition. If that contribution was an example of the Conservative Front-Bench team at its best, it is not difficult to see why the contribution was ignored.
The hon. Gentleman left one indelible impression on my mind—the idea of our three women Treasury Ministers strutting their machismo round the Chamber.


I hope that they will carry on strutting their machismo for the rest of our discussion of the Bill, because it is important that they hold the line.
The importance of the oil industry in the United Kingdom is often understated. Not only can we produce our own oil, but the industry still pays substantial sums to the Treasury—about £4 billion a year, down from the boom years when about £12 billion a year was paid in royalties and tax to the Treasury. It is a mature industry and is now in decline. We know that the decline will be long and slow. In my constituency in Aberdeen, we are still looking to at least another 20 or 30 years of the oil industry.
The fact that the industry is not in its prime must be taken into account, so I am pleased that the Government have introduced the measure. One of the biggest problems that the industry faces is the ownership structure. In the early years, many small and large companies bought shares in the various oilfields that were developed, some of them speculatively, and some of the shares have paid off handsomely.
However, rationalisation of investment is necessary to reduce costs in the North sea. We are still an expensive province, and we all compete for the same share of oil investment. It is a global industry and a global market. There is one pot of money in each company, and we compete with provinces around the world for that investment, for example, we compete with Kazakhstan, western Australia, Asia and the middle east.
Most of the middle eastern Governments are exploring the possibility of western investment coming in. All those countries can produce their oil and their gas much more cheaply than we can in the United Kingdom, so it is important that the Government take every opportunity to support the industry. The measure is a small but important one, particularly for the long-term future of the industry.
There are about 380,000 jobs in the oil industry throughout the UK. A recent survey by the Offshore Contractors Association, which is based in my constituency of Aberdeen, determined that 220 Members of the House had constituencies with more than 500 oil-related jobs. That is a significant figure. There is an impression that the industry operates only in Aberdeen, Lowestoft, Great Yarmouth, Teesside and Merseyside, but it penetrates virtually all the country. Even here in the south-east and central London, significant numbers of jobs in planning, computers and software are related to the oil industry.
Measures that help the industry and the jobs in my constituency help jobs throughout the country. They will also help to sustain the industry throughout the country for the next 20 or 30 years and I congratulate the Government on their introduction.

Sir Robert Smith: I follow the hon. Member for Aberdeen, Central (Mr. Doran) in emphasising the pervasiveness of the oil industry. It has not only a direct, obvious presence, but has tentacles—such as subcontracting and the supply industry, which depend on it—that reach throughout the United Kingdom economy. It is important not only to Members of Parliament who represent constituencies with a direct oil interest, but to every hon. Member that the oil industry thrives and prospers long into the future.
As the joint vice-chair of the all-party offshore oil and gas industry group, I recognise the industry's importance and welcome anything that will help it to grow and prosper. Although it is especially important to my constituency in the north-east of Scotland—it is obvious and on the doorstep—from time to time we lose sight of the extent to which it pervades our local economy and how dependent on it we have become. Therefore we do not always realise that we look to the future by supporting and developing it.
We must look to the future by making sure that the industry's morale survives this period of low oil prices and by recognising that the industry is a mature province. Although we still have infrastructure in the original main fields, new technologies can exploit far smaller reserves that were ignored first time round. Those technologies are viable and economic because they can bolt on to the original technology at the heart of the mother fields, but if they go out of production we will lose that essential infrastructure and not achieve further onward developments.
Such developments would be a great benefit because the technology being developed in the North sea is exportable. If we have a good home market and a good home base for the industry, we can build the export industry and confidence in it. This country missed opportunities because it did not develop the export potential of an industry on our own doorstep as much as we might have liked. However, many small innovative contractors have the confidence to export, but they need the security of the home market. That is why anything that the Government can do to avoid disrupting the market and to encourage it is to be welcomed.
When the Government were elected, they did not fully understand the sensitivity of the market and embarked on a clumsy review of oil taxation, which worried people and threatened investment. I hope that the measure is a sign that we can draw a line in the sand on that and that the Government are beginning to learn their lessons and work constructively with the industry. I have welcomed the establishment of the task force. I hope that the measure is a symptom of what can come out of its work—not only bringing the industry and various Departments together to understand how complex and interconnected the industry is, but bringing various sectors of the industry together so that they can co-operate. Taking a constructive approach to the industry will benefit the individual players within it.
We need to drive forward the industry's export potential. In particular, I welcome paragraph 10 of the Treasury briefing on new clause 17, which states:
The cost of this measure is therefore expected to be negligible. The loss of tax on gains on oil licence disposals under current legislation is expected to be offset by increases in tax yield resulting from the benefits of more rationalisation of UK oil licence holdings.
That underpins the whole argument that those of us who support a long-term viable future for the industry have been putting to the Government. We want them to say now that they want to make money from the long-term future of the industry and want it to survive. That would send an important signal to people in boardrooms around the country who are deciding where to invest. If the country bought into the idea of achieving long-term returns, the industry may benefit if it also invested to achieve long-term returns.
If we can send out such a signal and build on the optimism, the industry may emerge from the price shock of the past year with more potential than would have been the case if we had not been brought to our senses by it. In particular, it helped to bring the Government round from their initial approach of immediately taking more money out of the industry, which was an easy way for the Treasury to benefit. They are beginning to realise that the Treasury will benefit if the industry survives well into the future.
Every year oil companies hold briefings on the industry's future and every year the graphs look set to dip. Oil is a finite resource, but we have pushed the envelope of that graph well into the future and the industry is viable. People ask me, "What will we do in the north-east when the oil runs out?" We should make sure that we exploit what oil there is and maximise for our community the benefits of having a good industry on our doorstep.
The industry pervades our economy and we should maximise the benefits of that for the United Kingdom and maximise its great export potential. I urge the House to support the measure and send a signal of optimism to those who have to make the vital decision to invest for the long term in an industry that is so important to the United Kingdom economy.

Mr. Blizzard: I, too, support new clause 17 and wholeheartedly welcome the restoration of the capital gains tax roll-over relief for the oil and gas industry. I am the chairman of the all-party offshore oil and gas industry group and I represent a constituency that relies heavily on the industry, which is a major source of employment.
The industry has been operating for about 30 years and has achieved huge benefits for this country, such as the sheer scale of its input into our economy. Often, people think only of the 30,000 jobs offshore, but 10 times that number are spread around the country onshore through the 5,000 contractors whose work relates to the industry. Annual investment from the industry accounts for about 16 per cent. of total British industrial investment.
Hon. Members should consider for a moment the sums that I am talking about. Shell, which is based in my constituency, invests about £2.5 billion a year in the North sea operation. We should compare that with the capital investment that is made when a new Japanese electronics company sets up. We rightly get excited about investments of £200 million, £300 million or £400 million, but one oil company is investing annually eight times that sum in the North sea. That is substantial investment.
In my constituency, as in many others, the industry provides the employment that was lost from shipbuilding and fishing. The employment comes not only from large companies such as Shell and large fabricators such as Odebrecht, but from home-grown companies such as KYE and Boston Putford and scores more, some of which are little businesses with fewer than 10 employees. They all form part of the supply chain for the industry.
The industry has also provided a huge source of revenue to the public purse down the years—the debate concerns how that can continue—and relatively clean North sea gas, which has been of great benefit to the environment. When that fuel is used to generate

electricity, it produces only half the CO2missions of coal burn. This country is on course to meet the Kyoto targets because of the contribution made by North sea gas.
As other hon. Members have said, the industry has been going through a difficult time, and it is still doing so. The situation was critical when the international oil price fell to $10 a barrel. Although the price has recovered to about $16, the outlook is for a price somewhere between those figures rather than an increase to the bigger prices of the past. To understand what is going on in the North sea, we have to look beyond the oil price, because the industry is not the same as it was 30 or even 15 years ago. In fact, people then thought that the industry would not still be with us today. It is remarkable that it still is, even if field sizes are not the same as years ago.
8 pm
It would not be economic to exploit today's fields if the industry still operated as it did 20 years ago. The industry has undertaken dramatic cost reduction measures, efficiencies and the development of new technology in a hostile environment, all of which has made the North sea a world leader. It is good for our business that we can export technology and expertise around the world.
The industry has changed, and, in its maturity, it needs a new tax structure, different from those of the past. We want the industry to continue for another 30 years—we need the jobs. We want the exports to continue, and we want continued investment that must be won in a global economy in which oil companies can choose to come here or go elsewhere. We want continued tax revenue from a huge industry. As long as the infrastructure exists in the North sea, it makes environmental sense to extract as much oil and gas as possible rather than leaving it behind.
Capital gains tax roll-over relief will help. It is well targeted and effective, and it will enable assets to be consolidated or traded, ownership to be rationalised and partners to be aligned. It will therefore reduce costs. Various projects and deals that would not otherwise have gone ahead can go ahead because of the change. Existing infrastructure can be used to develop satellite fields, and the relief will encourage investment, extending the life of the industry. It is a win for both the industry and the Treasury. By extending the life of the industry, the Treasury will receive more revenue in the end.
The measure proves that we have a listening Government. The industry has put its case, and the Government have listened. The Government want to work with the industry, and their method of doing so provides a model for such working. The task force has been formed, and the Government have sat down to see what can be done. Rather than having a lot of empty bluster after everything has been sorted out, a task force—into which both the industry and the Government put much time and effort—has brought about results.
The Government have signalled their commitment to the oil and gas industry, and they understand that field size—and not just oil price—is important. The changes are welcome in my constituency and in the scores of others around the country that support the industry. One comes to the House to press many issues and ask many questions. It is good sometimes to see a case on which one has worked coming to fruition.

Mrs. Roche: This has been an interesting debate. I shall deal first with new clauses 15 and 16, which deal


with the definition of an asset. The definition—not new, but in existing legislation—is plant and machinery used in the field.

Mr. Quentin Davies: Does that include a floating production platform?

Mrs. Roche: Floating production platforms are unlikely to be affected by new clause 15.

Mr. Davies: That is a very vague response. In what circumstances would a floating production platform be affected, and in what circumstances would it not be affected? It is important to be precise.

Mrs. Roche: The hon. Gentleman will appreciate that one must be careful in the language that one uses when dealing with taxation. I have been as precise as I can under the circumstances. Assets affected would include terminals and pipelines. The position regarding floating production platforms would depend on whether they were considered to be a mobile asset, a dedicated mobile asset or a fixed asset. The hon. Gentleman was perfectly right to ask his question. I mean no disrespect to him when I say that it was one of the most coherent parts of his speech.

Mr. Peter Brooke: The Financial Secretary has read the note handed along the Bench to her, and has indicated that the situation would depend on three different things. However, she did not say in what way it would depend on them.

Mrs. Roche: The right hon. Gentleman will realise that the situation will depend on individual circumstances. A definition of assets is included in the Oil Taxation Act 1983. There are also matters of interpretation, and, as a former Treasury Minister, the right hon. Gentleman will appreciate that the situation depends on circumstances. I have been as helpful to the House as I can. The position would also depend on what had been agreed at the time—the right hon. Gentleman knows how the Inland Revenue works, and what negotiations take place; he has a good memory, and all that will come flooding back to him.
The principal subject of our debate is capital gains tax roll-over relief. We heard an excellent speech from my hon. Friend the Member for Aberdeen, Central (Mr. Doran), who takes a close interest in the industry and who has great expertise. We heard a further excellent speech from my hon. Friend the Member for Waveney (Mr. Blizzard), who chairs the all-party offshore oil and gas industry group. We have had many interesting discussions on the subject, and I know of his great efforts in this regard. The hon. Member for West Aberdeenshire and Kincardine (Sir R. Smith) also holds a position in that group.
It is difficult to know how to characterise the speech made by the hon. Member for Grantham and Stamford (Mr. Davies), except to say that I heard every word, even though he delivered it without a foghorn. My hon. Friends and I were accused of machismo and of strutting our stuff, and we shall be pleased to carry on as we are. I should have taken the hon. Gentleman's bluster and protestations more seriously if the hon. Member for Maldon and East Chelmsford (Mr. Whittingdale)—now off to be

Parliamentary Private Secretary to the right hon. Member for Richmond, Yorks (Mr. Hague)—had not congratulated us during the Committee Stage. At no time in Committee did he raise CGT roll-over relief. Even in the all-party group, no Opposition Member has ever raised the matter.
New clause 19 is an Opposition U-turn, reversing the position that they took in 1987. The hon. Member for Grantham and Stamford can protest all he likes, but they had all their years in Government to put it right. I shall outline the differences between our new clauses and the Opposition's new clause.
The Opposition want to allow roll-over relief on oil licences, with effect from 6 April 1999. Our new clause extends roll-over relief to oil licences from 1 July 1999, the date on which we tabled the new clause. Our aim is to encourage future transfers of oil licence interests. Applying roll-over relief to transfers that have already taken place would not help to achieve that objective. I see no case for making the new clause retrospective, as the hon. Gentleman suggested.
There are some technical differences between our new clauses. The hon. Gentleman would wish his new clause to be right, but it contains some technical problems. The Opposition want to add a new class of assets for oil licences under section 155 of the Taxation of Chargeable Gains Act 1992. That is an unnecessary complication, and the precise effect of new clause 19 is not clear as it refers to legislation that has already been repealed. The relevant provisions of the Petroleum (Production) Act 1934 were superseded with effect from 15 February 1999 by the Petroleum Act 1998. So the new clause that the hon. Gentleman invites me to prefer to the Government's new clause is defective. It is not precisely clear how the commencement rule would apply, as there is no indication of which acquisitions are to be covered by the clause.

Mr. Davies: The hon. Lady makes footling points. It makes no difference to the substance whether the provisions come into effect from April or July, and she must know that. There is no reference in our new clause to the 1934 Act, and I do not know where she got that from. Will she address the main point that I raised? Her proposed new clause takes us back to the uncertainties of the pre-1987 regime, whereas our new clause creates an explicit new class of assets which will qualify for CGT roll-over relief. The essential difference between our new clauses is the unambiguity and greater certainty of the one, and the ambiguity and lesser certainty of the other. I hope that the hon. Lady will not run away from this important issue.

Mrs. Roche: I regret that the hon. Gentleman has taken the same approach as he has taken throughout the debate, in contrast with other hon. Members who have contributed to a positive discussion about the state of the industry. I do not regard technical deficiencies in a new clause as a footling matter. I shall deal with his points if he will allow me to proceed.
When drafting our new clause, we carefully considered whether we needed to introduce a new class of assets for United Kingdom oil licences into the list of classes of assets already eligible for roll-over relief. We concluded that a new class of assets was not necessary, and that the only change required to ensure that companies can claim roll-over relief on oil licences was to repeal section 193 of the Taxation of Chargeable Gains Act 1992.
Since 1987, the Inland Revenue has accepted—the hon. Gentleman will know this if he has done his homework—that UK oil licences are an interest in land as defined in class 1A of section 155 of the 1992 Act. It has recently obtained advice from its solicitors confirming that. Its acceptance of that point is made clear in its published manual on the corporation tax rules that apply to North sea oil companies. As a result, when section 193 is repealed by new clause 17, the only barrier to oil companies claiming roll-over relief on UK oil licences will be removed. I assure the House that, as UK oil licences are interests in land, new clause 17 will allow companies to claim roll-over relief on the disposal of UK oil licences.
This has been a good debate. I should like to congratulate all hon. Members who took part. I also want to thank my hon. Friend the Minister for Energy and Industry, who chairs the task force on this issue, and the industry for all the constructive discussions we have had. I commend the Government's new clauses, and urge the House to reject the Opposition's new clause.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 16

PETROLEUM REVENUE TAX: INSTALMENTS

'.—(1) In paragraph 3 of Schedule 19 to the Finance Act 1982 (months in which instalments may be withheld)—

(a) in sub-paragraph (1), at the beginning there shall be inserted "Subject to sub-paragraph (1A) below," and after "month" there shall be inserted "(the relevant month)"; and
(b) after that sub-paragraph there shall be inserted the following sub-paragraph—

?(1A) Sub-paragraph (1) above does not apply if the relevant month is a month in which any consideration (whether in the nature of income or capital) is received or receivable by the participator in respect of any such matter as is mentioned in paragraph (a) or (b) of section 6(2) of the Oil Taxation Act 1983 (chargeable tariff receipts)."

(2) Subsection (1) above applies for the purpose of determining whether instalments are payable in respect of chargeable periods ending on or after 31st December 1999.'.—[Mrs. Roche.]

Brought up, read the First and Second time, and added to the Bill.

New Clause 17

BUSINESS ASSETS: ROLL-OVER RELIEF

'.—(1) Section 193 of the Taxation of Chargeable Gains Act 1992 (roll-over relief not available for gains on oil licences) shall cease to have effect.

(2) This section has effect in relation to—

(a) a disposal of a licence or an interest in a licence which occurs on or after 1st July 1999;
(b) an acquisition of a licence or an interest in a licence which occurs on or after 1st July 1999.'.—[Mrs. Roche.]

Brought up, read the First and Second time, and added to the Bill.

New Clause 8

LENDING BY REVENUE ACCOUNTS TO NATIONAL LOANS FUND

'.—(1) Where, at the close of business on any day, a sum stands to the credit of—

(a) the General Account of the Commissioners of Customs and Excise, or
(b) the General Account of the Commissioners of Inland Revenue,

that sum may be lent to the National Loans Fund on that day.

(2) Subsection (1) above does not apply to any sum to the extent that it is required to be paid, on the day in question, in accordance with section 10 of the Exchequer and Audit Departments Act 1866.

(3) A loan made by virtue of subsection (1) above shall be repaid before the close of business on the day after the loan is made or, where that day is not a business day, before the close of business on the next business day.

(4) Subject to subsection (3) above, a loan made by virtue of subsection (1) above shall be made in such circumstances, and on such terms and conditions, as the Treasury may from time to time direct.

(5) In this section "business day" means any day other than—

(a) a Saturday or Sunday;
(b) Good Friday or Christmas Day;
(c) a day which, in England and Wales, is a bank holiday under the Banking and Financial Dealings Act 1971;
(d) a day specified in an order under section 2(1) of that Act (days on which financial dealings are suspended) and declared by that order to be a non-business day for the purposes of this paragraph; or
(e) a day appointed by Royal proclamation as a public fast or thanksgiving day.'.—[Ms Hewitt.]

Brought up, and read the First time.

The Economic Secretary to the Treasury (Ms Patricia Hewitt): I beg to move, That the clause be read a Second time.
New clause 8 allows any cash balances held at the close of business in the bank accounts of the two Revenue departments at the Bank of England to be lent overnight to the National Loans Fund, which will repay what it borrows by close of business on the following business day. That will help the Debt Management Office to manage the Government's cash requirements efficiently when it takes on that role. The DMO will be able to rely on these Revenue department balances being available to help to balance the daily cash flows into and out of the National Loans Fund. That will decrease uncertainty for the DMO, and will, most importantly, prevent it from having to pay to raise cash in the market when there is already cash available within Government.
At the same time, the money will still be available during the business day to cover the possibility that tax repayments due exceed tax receipts on that day. The change will benefit Government, but will not have any effect on the Revenue departments' dealings with taxpayers. New clause 8 is a sensible piece of housekeeping by the Government, and I commend it to the House.

Mr. Howard Flight: This certainly sounds like a sensible piece of corporate management: the corporate treasurer approach making the


National Loans Fund the cash flow management vehicle for Government. The rate of interest and terms will be decided as the Treasury sees fit. It would be interesting to know whether the Treasury will see fit to pay market rates or some other specific rate.
It would be valuable to know the balances that go through Customs and Excise during the year, whether its overall budgeting has hitherto taken account of interest earned and whether that level will change.
The new clause implies that the sums may be lent at the volition of the commissioners of Customs and Excise and the Inland Revenue. Surely the intention is that it will be at the direction of the Treasury, whether the commissioners want it to happen or not.
I ask myself why, at this stage of the Bill, the Government have suddenly had a conversion to corporate efficiency. Why was this measure not introduced long ago? It has been slipped in quietly at the end of the Bill. Surely this is what the Bank of England, as the Government's banker, has done, in that the different organs of Government have had positive and negative balances. The Government own the Bank of England, so why do they need to step back from the Bank and allow the National Loans Fund to manage cash flows? Does it, by any chance, have anything to do with European Union obligations, and the fact that the Government will not be able to borrow from the Bank of England? It would be undesirable for one Government account and the National Loans Fund to be overdrawn at the Bank of England as a result of a temporary cash flow problem. Perhaps the pooling of these cash flows into the National Loans Fund is designed to avoid that.
It is surprising that the Government have slipped this measure in at this stage of the Bill, unless there is some reason beyond virtuous corporate treasurer efficiency, which should not be necessary as the Government own the Bank of England. Perhaps there is some other reason that the Government are not disclosing.
Will the Economic Secretary deal with the specific organisational questions to which I referred earlier, and tell us the reason for using the National Loans Fund as the cash manager, rather than the Bank of England?

Mr. Michael Fabricant: Like my hon. Friend the Member for Arundel and South Downs (Mr. Flight), I also wonder why this new clause has been introduced on Report. The explanatory note produced by the Treasury says that this is merely a technical provision. Unlike my hon. Friend, who believes that it has been introduced by the treasurers for some Machiavellian reason, I suspect that it was tabled at this late stage of the Bill merely due to incompetence.
What will be the market test for this borrowing from one Government Department to another, or from one series of funds to another, rather than on the open market? The Minister said that it was obviously cheaper to borrow internally. I accept that, but will a nominal interest rate be set? If such a rate is set, who will charge it against whom? Will it be entirely within the Treasury, or will a particular Department benefit from the loan funds overnight?
When the moneys are chargeable, will we see a transfer of funds? And—this may interest the House more—how much does the Paymaster General think will be loaned overnight, as an aggregate sum, over a year? Are we talking about millions, or about billions?

Mr. Nick St. Aubyn: I am listening carefully to my hon. Friend's speech, but, apart from the Minister's Parliamentary Private Secretary, no Government Back Bencher is present to listen to this important debate.

Mr. Fabricant: I find that extraordinary. We may be speaking about billions or, for all I know, trillions of pounds. The Paymaster General gave no indication of the amount that we are discussing. Let us not forget that this is not Government money; it is our money. It is their money—taxpayers' money. We need to know how the taxpayer will be affected. Will he or she benefit from the interest rates that are being set, or will he or she suffer a disadvantage because the money is not sought from outside sources?
It is not good enough to try to slip a measure through late in the evening when Labour Members—all 300-plus of them—are wining and dining in the fleshpots of London. We are talking about taxpayers, money. Thank God we have an Opposition who are at least opposing these proposals.

Ms Hewitt: I rather regret the fact that I do not have the chance to wine and dine, whether in the fleshpots or simply in the Members' canteen.
We engaged in a full and interesting debate on this subject in Committee. Clause 125 completes the separation between monetary policy and cash management—debt management operations—that we undertook when we gave the Bank of England operational independence in regard to monetary policy. The new clause is simply and genuinely a technical consequence of the main provision that we introduced in the Bill. It follows from the assumption of cash management by the Debt Management Office, a Treasury agency that already handles debt management.
As the hon. Member for Arundel and South Downs (Mr. Flight) said, at present the Government's daily need for cash to balance the books is met through the Bank of England, and through the ways and means overdraft facility with the Bank's issue department. However, once we start managing the cash separately and allowing the Debt Management Office to manage it on behalf of the Government, it would be inefficient to allow money to sit in separate accounts—those belonging to the Revenue departments—if it could be made available to meet a deficit on the National Loans Fund, when the alternative to using that spare cash would be borrowing by the DMO from the markets.
Let me reassure the hon. Gentleman and his colleagues that this has nothing whatever to do with our possible entry into the single currency in years to come. We have simply completed the separation of monetary policy and debt management operations, in order to avoid any conflict of interests—or perceived conflict of interests—between the two. In particular, as I explained in


Committee, the separation will assure the markets that debt management decisions are not influenced by inside information on interest rate decisions.

Mr. Fabricant: Will the Minister answer the specific questions that I asked her? I see that her official has passed her a note, so perhaps she will be able to do so. First, what amounts are we talking about on aggregate—millions, billions, trillions or what? Secondly, if she is in effect market-testing between internal transfers within the Treasury and borrowing on the open market, what interest rates will be set and what criteria will she use to set them?

Ms Hewitt: I was just coming to that. All in good time.
There will be no interest rate charges, because money is simply being lent from one Government account to another. It would be no more appropriate to charge interest on the loans than it would be if I were transferring money from one account to another in my own name. As for the amounts that might be lent, we estimate that the maximum that Customs and Excise might lend would typically be about £700 million. We do not expect to be able to meet the loans from the Inland Revenue to the National Loans Fund, although the new clause gives the power for that to be done.
As I say, this is simply a technical provision that will further improve the Government's housekeeping arrangements and, by reducing any possible need for the DMO to raise money on the open market, will save the taxpayer modest amounts of interest that would otherwise have been paid.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 4

ALLOWABLE LOSSES WHERE BENEFICIARY ABSOLUTELY ENTITLED

'.—(1) For subsection (2) of section 71 of the Taxation of Chargeable Gains Act 1992 (allowable losses of trustees treated as transferred to a person becoming absolutely entitled to settled property) there shall be substituted the following subsections—

"(2) Where, in any case in which a person (`the beneficiary') becomes absolutely entitled to any settled property as against the trustee, an allowable loss would (apart from this subsection) have accrued to the trustee on the deemed disposal under subsection (1) above of an asset comprised in that property—

(a) that loss shall be treated, to the extent only that it cannot be deducted from pre-entitlement gains of the trustee, as an allowable loss accruing to the beneficiary (instead of to the trustee); but
(b) any allowable loss treated as accruing to the beneficiary under this subsection shall be deductible under this Act from chargeable gains accruing to the beneficiary to the extent only that it can be deducted from gains accruing to the beneficiary on the disposal by him of—

(i) the asset on the deemed disposal of which the loss accrued; or
(ii) where that asset is an estate, interest or right in or over land, that asset or any asset deriving from that asset.

(2A) In subsection (2) above 'pre-entitlement gain', in relation to an allowable loss accruing to a trustee on the deemed disposal of any asset comprised in any settled property, means a chargeable gain accruing to that trustee on—


(a) a disposal which, on the occasion on which the beneficiary becomes absolutely entitled as against the trustee to that property, is deemed under subsection (1) above to have taken place; or
(b) any other disposal taking place before that occasion but in the same year of assessment.

(2B) For the purposes of subsection (2)(b)(ii) above an asset ('the relevant asset') derives from another if, in a case where—

(a) assets have merged,
(b) an asset has divided or otherwise changed its nature,
or
(c) different rights or interests in or over any asset have been created or extinguished at different times,
the value of the relevant asset is wholly or partly derived (through one or more successive events falling within paragraphs (a) to (c) above but not otherwise) from the other asset.

(2C) The rules set out in subsection (2D) below shall apply (notwithstanding any other rules contained in this Act or in section 113(2) of the Finance Act 1995 (order of deduction))—

(a) for determining for the purposes of this section whether an allowable loss accruing to the trustee, or treated as accruing to the beneficiary, can be deducted from particular chargeable gains for any year of assessment; and
(b) for the making of deductions of allowable losses from chargeable gains in cases where it has been determined that such an allowable loss can be deducted from particular chargeable gains.

(2D) Those rules are as follows—

(a) allowable losses accruing to the trustee on a deemed disposal under subsection (1) above shall be deducted before any deduction is made in respect of any other allowable losses accruing to the trustee in that year;
(b) allowable losses treated as accruing to the beneficiary under this section, so far as they cannot be deducted in a year of assessment as mentioned in subsection (2)(b) above, may be carried forward from year to year until they can be so deducted; and
(c) allowable losses treated as accruing to the beneficiary for any year of assessment under this section, and allowable losses carried forward to any year of assessment under paragraph (b) above—

(i) shall be deducted before any deduction is made in respect of any allowable losses accruing to the beneficiary in that year otherwise than by virtue of this section; and
(ii) in the case of losses carried forward to any year, shall be deductible as if they were losses actually accruing in that year."

(2) This section applies in relation to any occasion on or after 16th June 1999 on which a person becomes absolutely entitled to settled property as against the trustee.'.—[Dawn Primarolo.]

Brought up, and read the First time.

The Paymaster General (Dawn Primarolo): I beg to move, That the clause be read a Second time.
The new clause is intended to prevent avoidance of capital gains tax through the purchase of losses realised in trusts. We are introducing it now because it is only in the past six weeks or so that the Inland Revenue has gathered evidence of significant exploitation. When we announced the measure on 16 June, our assessment of the potential loss of revenue, if the schemes of which we had evidence were to succeed, was about £500 million. Since then, further schemes have come to light, and the estimate has now risen to £750 million. That is exploitation on a grand scale, and it is entirely unacceptable. We have made it clear that we shall take prompt action to stamp out


avoidance of this kind. That is why we are taking action now, and why we shall continue to take such action whenever the need arises.
Capital losses realised by trustees on assets in a trust can normally only be set against capital gains of the trust. The losses cannot be transferred to beneficiaries of the trust, except in one situation: when a beneficiary becomes absolutely entitled to settled property under the terms of the trust—in other words, when the property of the trust becomes the property of the beneficiary. Any capital loss arising on that occasion that cannot be used by the trustees is transferred to the beneficiary.
Those rules, which have applied since 1965, are being exploited in the following way. Trustees of trusts with large losses that cannot be used to offset gains within the trust create an interest in the trust property in favour of a beneficiary. That interest is contingent on a certain event occurring—an event that is almost bound to occur—after a short period.
Steps are then taken for appropriate portions of the interest to be sold to individuals and companies that have gains to shelter. Those individuals and companies become new beneficiaries of the trust. When the appointed day arrives—usually after a very short time—the appropriate amounts of losses pass to them. In such cases, huge losses are available. The Revenue is aware of one scheme where a manufactured loss of £1 billion is involved. The effect is that people with gains can use losses that they have not incurred to eliminate their tax liability. That is wholly contrary to the purpose of the legislation.
8.30 pm
The mischief is not confined to cases where new beneficiaries purchase an interest in the trust. The beneficiaries could be appointed by the trustees, or the interest could be transferred to the ultimate beneficiary via an intermediary. It is because of those difficulties that confining action to the purchase of interests in trusts would not solve the problem.
The Revenue has been aware of the possibility of loss buying in those circumstances for some time, but there has been no evidence of a widespread problem until very recently. However, as I have said, in the past few weeks, evidence has emerged of very large losses being manufactured in trusts purely to take advantage of those rules by profiting from their sale. The scheme takes a number of forms, but all involve the creation of losses within UK trusts, or the use of UK trusts with existing losses, so that the trust loss can be sold to prospective purchasers.
Although the Revenue will challenge the validity of those schemes under existing law, the scale of the problem is so large that we are not prepared to stake the potential loss of so much tax on the possibility of a favourable outcome in the courts. The only sure way to stop the sale of all future trust losses is to attack the source of the problem; I am sure that hon. Members agree.
The new clause provides for losses on trust assets sold by the trustees to be allowed within the trust under the normal rules. If a beneficiary becomes absolutely entitled to an asset in the trust and a loss is deemed to accrue on that occasion, and if the trustees cannot offset that loss against gains arising at that time, or earlier in the year, the loss will be transferred to the beneficiary, but the beneficiary can then use that loss only against subsequent gain arising on that asset.
That is how the legislation should work and that is how it will work from now on. The new clause not only stops a serious potential loss of tax, but puts right an anomaly in current legislation, which should have been corrected a long time ago. I commend the new clause.

Mr. Quentin Davies: I have some sympathy for the Paymaster General's approach to the problem. She has set out her thinking clearly, for which we are grateful. However, several points concern me. I shall ask her some questions. I hope that I receive clear and sensible answers, so that we can have a serious dialogue across the Dispatch Box. I hope that she does not follow the example of the Financial Secretary to the Treasury, who tried to avoid all my questions although, finally, she made the declaration that I wanted all along, so I suppose that we must be grateful to her for that.
Two things concern me most about the new clause. It seems to run counter to, and potentially to damage, two principles that should characterise our tax law, or any rational and fair tax law. I fear that the new clause moves our law on capital gains tax away from those two principles.
The first, which is terribly important, is even-handedness between losses and gains. If trustees can distribute gains and if those gains are subject to tax in the hands of the recipient and beneficiary, it should be axiomatic that trustees can distribute losses and that those losses can be used freely by the beneficiary, to be set against gains for which he or she might otherwise be liable elsewhere on his or her portfolio of investments. We seem to be moving away from that principle of equivalence of treatment between gains and losses.
Secondly, the new clause poses the danger of moving us away from the principle that an individual should be taxed on the basis of his or her income or capital gains to the greatest extent possible, irrespective of whether those assets are held, those incomes or gains derive from a beneficial interest in a trust, or whether they are held directly.
We know very well that, for many years—although it is not always the case—trusts were established deliberately to avoid tax legally. However, the previous Government's reforms, which have been implemented in the past few years, to modernise our tax system have all attempted to remove that anomaly in tax law, and to ensure that people are taxed on their real financial position—on losses or gains for capital gains tax; on income for income tax—regardless of whether income was channelled through, or assets held, in a trust. Now, we are moving away from trying to make such a reform.
There may be very good reasons for establishing a trust, and I do not want anyone to get the impression that Conservative Members are against establishing one. There are extremely respectable—indeed, valuable—reasons for establishing a trust, such as to promote a particular cause or objective, to protect the interests of minors, or to protect family property down the generations by preventing one generation from squandering it all. Those are all sensible and responsible uses of a trust. However, so far as possible—this was the thrust of the previous Conservative Government's reform of trust taxation—trusts should not be established simply to shelter a given income flow or potential capital gains from tax to which the beneficiary, without a trust, would be liable.
New clause 4 moves against the previous Government's reforms, and in the direction of creating a situation in which it is less advantageous to have losses credited to one in a trust, as it would not be possible to offset those losses against gains that might arise elsewhere in one's portfolio. Such an offset should be allowed if gains distributed to the beneficiary are similarly taxable.
Those are my general concerns, and those principles certainly inform the Opposition's thinking and the way in which we consider tax. I should like the hon. Lady to tell us, very frankly and seriously, whether she generally shares our principles in the matter; and, if she does, how she justifies moving the proposals in new clause 4 and, regrettably, taking the Taxation of Chargeable Gains Act 1992 away from those principles. If she does not share our principles, perhaps she will tell us why she does not.
The hon. Lady justified the Government's proposals entirely on the ground that they would deal with potential tax avoidance, and she gave some alarming figures on that. I am, again, grateful to her for her extremely intelligent and sensible exposition of the Government's thinking on the matter. She explained why the Government feel that there would not be sufficient protection if we legislated that gains could be enjoyed for purposes of setting against losses only when the beneficiary to which the gains were distributed had not purchased his or her interest in the trust—as other mechanisms would be available that could lead to the same abuse that she described. An existing beneficiary could, for example, nominate another beneficiary, or the trustees could nominate another beneficiary.
My initial reaction to those examples is that, presumably, without some financial consideration, no one would nominate someone else to benefit from gains or useful losses that were attributable to him or her. I should think, therefore, that the approach that the hon. Lady rejected might be more promising than, at first sight, she believed they were. I am quite certain that, in practice, any trustee or beneficiary who is giving away his or her rights is receiving some form of compensation. Therefore, if we legislated to ensure that such ultimate beneficiaries could not enjoy the benefits of losses they had thus acquired, we might solve the problem. I hope that she thinks a little further about whether there might be some other way to approach the issue which would not do violence to the key principles that I have just enunciated.
Another approach that is worth exploring and on which I should like a response from the Paymaster General would be to protect those who are beneficiaries by virtue of the original trust deed. They might not be named in the trust deed because they might be a subsequent generation, but they would be of a category provided for in the original trust deed rather than secondary or tertiary beneficiaries who had been nominated or who had purchased their interest in the trust through the avenues that the hon. Lady set out. I make my suggestions in a constructive spirit, because I share the Minister's concern about the potential loss of tax revenue and I am grateful to her for the extent to which she has taken us into her thinking.
I do not doubt the hon. Lady's personal sincerity, but the new clause aroused my suspicions. Eliminating the risk of tax avoidance is not a full and credible explanation

of the motives behind the Government's proposals. Only a small part of the new clause—subsection (2)—addresses potential avoidance. Subsection (2D) sets out the rules for the order in which losses can be set against gains for the purposes of determining capital gains tax liability. Subsection (2D)(a) says:
allowable losses accruing to the trustee on a deemed disposal under subsection (1) above"—
deemed disposal is when an asset is transferred from a trust to the direct ownership of the beneficiary—
shall be deducted before any deduction is made in respect of any other allowable losses accruing to the trustee in that year".
What the devil does the order in which losses are set off against gains have to do with tax avoidance? If someone set up an artificial scheme to generate losses in a trust to be set against gains from elsewhere to reduce CGT liability, they would not need to be told by legislation that the losses had to be used in that way because they would have gone to the trouble of creating those losses for the purpose of reducing CGT liabilities. That arouses great suspicions, which I hope that the hon. Lady will be able to allay. If she does, we shall support a well considered attempt to attack a genuine source of potential tax avoidance.
Subsection (2A) refers to
a disposal"—
by the trustees—
which, on the occasion on which the beneficiary becomes absolutely entitled as against the trustee to that property, is deemed under subsection (1) above to have taken place; or
(b) any other disposal taking place before that occasion but in the same year of assessment".
Taken together with subsection (2D), which I quoted earlier, the effect will be that trustees who cannot make use of all their losses will not be able to distribute those other than the deemed losses that may have been incurred to the beneficiary, because they will have had to set off against any gains the deemed losses in the first instance. Once those are exhausted, they may find themselves with other additional losses that cannot be transferred to the beneficiary. Trusts will lose the ability to use certain losses.
Is the new clause an attempt to prevent a new source of tax avoidance or is it an attempt to change the existing regime applying to trusts to make it less favourable to honest trusts, which will no longer be able to use the totality of losses that is currently available to be set off against CGT-liable gains? That is what I want to know.
8.45 pm
Why are we going in for this complication? Why do we have these rules on the order in which the losses must be applied? Is not it incredible—or non-credible—to suppose that if artificial losses are created, they will not be used immediately to offset gains? Why would people otherwise take the trouble and expense to set up these artificial schemes?
We want to know whether these matters have been thought through. Does this proposal really represent the bare minimum required to address the notional or potential loss? Will the position of entirely innocent trusts—which continue to administer themselves on the same basis and are not the source of any artificial schemes—be made considerably less favourable by what I believe to be a far too bluntly drafted clause?

Dawn Primarolo: As this is the first time that I have addressed the hon. Member for Grantham and Stamford (Mr. Davies) from the Dispatch Box since his promotion, may I belatedly congratulate him and welcome him to the Opposition Front Bench?
I will try to deal with the points raised by the hon. Gentleman, which are very important. The Government were faced with a serious situation. The current tax rules in this area are anomalous. Trustees of trusts are taxed as a separate person from the beneficiaries for capital gains purposes, and are chargeable on all gains made on trust property at the special rate.
It is more than a little odd that, in those circumstances, the rules should allow losses on trust property to be passed to beneficiaries to set against gains on property which have not emerged from the trust. Losses realised by the trustees ought to be allowed only against property which is in the trust or which has come out of the trust. That is what the new clause is trying to deal with.
The hon. Member for Grantham and Stamford asked about the purchased interests, and why we have not attacked them. There would be a real difficulty in establishing whether a trust interest had been purchased. Under some arrangements, the trustees and the beneficiaries may be bypassed altogether, with the money—because there is a payment—going directly from the purchaser to the scheme organiser or the loss creator.
It would have been futile to introduce legislation which missed the mark and allowed some schemes to escape and provide opportunities for other schemes to be reworked to get around the rules. The hon. Member for Grantham and Stamford asked whether that may still be the case. We have tried to write the rules in the new clause in such a way as to prevent that from happening in what is a complex area.
We have tried to avoid immensely complex legislation, which could deny the transfer of loss to beneficiaries who might be genuinely added at the discretion of the trustees. That would be wrong in principle. The only situation where we consider it justified for losses to continue to be transferred from a trustee to a beneficiary is where the asset on which the loss arises is transferred to the beneficiary.

Mr. Quentin Davies: I am well aware of what the proposals are. I am asking the Paymaster General to think a bit further about a limitation that would exclude beneficiaries who have purchased their interest in the trust. Her original response was that such beneficiaries would not necessarily have had to purchase their interest because they could have been nominated by the trustees or a beneficiary, but it is fundamentally implausible that the trustees or a beneficiary would give away their interest—which must, by definition, have a value if it serves a purpose in a tax avoidance scheme—for no consideration.
Now, the Paymaster General says that the sums concerned might have been transferred from the ultimate beneficiary—the beneficiary of the artificial scheme—to the organisers of the scheme, with the trustees and the beneficiary having no benefit, but it would be a breach of trust law for a trustee simply to give away such an interest. A provision based on someone having directly or indirectly purchased an interest in a trust is a great deal more robust than she originally thought.

Dawn Primarolo: I do not agree. After careful consideration we came to the conclusion that such a

provision would be difficult and complex and would not deal with the abuse that is clearly taking place. The Government wanted to get to the root of the abuse without introducing too much complexity in the legislation. The capital gains tax system taxes the gains of trusts separately from those of individuals. The trustees are treated as different persons from the beneficiaries for CGT purposes. The new clause is an anti-avoidance measure. It does not alter the fundamental basis for taxing trusts.

Mr. St. Aubyn: Why, in closing the loophole, are the Government shifting the principle of tax neutrality from the beneficiary to the trust, introducing a much tighter definition that is very unfair to those who were given much fairer treatment under the previous Government's reforms over 18 years?

Dawn Primarolo: To ensure that the abuse is stopped. The potential loss of tax is so great that we had to act. If tax planners introduce such complicated and ingenious ways of getting round the intent of legislation, they must expect the Government to respond.

Mr. Davies: rose—

Dawn Primarolo: The complaint of the hon. Member for Grantham and Stamford seems to be that the Government have gone too far and that there were other ways of dealing with the matter. I have explained that, despite the fact that we considered some of his suggestions carefully, the only way of guaranteeing that we deal with the root problem is embodied in the new clause, which I commend to the House.

Mr. Davies: rose—

Mr. Deputy Speaker: Order. The Minister has finished her contribution. She is not giving way.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 9

EU TRAVEL EXPENSES

'.—(1) In section 200 of the Taxes Act 1988 (expenses of Members of Parliament), in subsection (2), for the words from "the cost of" to "Strasbourg" substitute "EU travel expenses" and after that subsection insert—

"(3) For the purposes of subsection (2) above 'EU travel expenses' are the cost of, and any additional expenses incurred in, travelling between the United Kingdom and—

(a) any European Union institution in Brussels, Luxembourg or Strasbourg, or
(b) the national parliament of another member State.".

(2) This section has effect in relation to sums paid on or after 1st April I999.'.—[Dawn Primarolo.]

Brought up, and read the First time.

Dawn Primarolo: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker: With this, it will be convenient to discuss Government amendment No. 25.

Dawn Primarolo: This clause makes a small but necessary change to the tax rules dealing with the


payments that Members of Parliament receive to cover the costs of visiting European Union institutions. In 1991, the House set up a scheme to meet the costs of one visit a year to EU institutions in Brussels, Strasbourg and Luxembourg. To avoid any uncertainty about the tax treatment of payments made under the scheme, the Conservative Government introduced what is now section 200(2) of the Income and Corporation Taxes Act 1988 to take them outside the scope of any tax charge.
On 26 May this year, the House passed a resolution extending the range of destinations covered by that scheme. Members can now also get the costs of one visit a year to the national Parliament of another EU member state. We need to carry that through to the tax rules; otherwise, we shall have a tax exemption for some payments authorised by Parliament for hon. Members' EU travel, but not others. The new clause extends section 200(2) to take in the additional destinations now included in the House scheme.
We also need to make a consequential amendment to schedule 5 of the Bill to ensure that the same rules apply to any corresponding payments made to Members of the Scottish Parliament and of the devolved Assemblies, in line with the resolution of the House.

Mr. Oliver Letwin: I do not want to tarry long on the new clause, because there are juicier morsels to come. However, I should like to ask the Paymaster General two or three questions.
We recognise that, in principle, the measure flows from a resolution of the House, to which the Minister referred. During the debate on that resolution, my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis), who occupies a special position in the House, mentioned that:
There has been a decline in the reputation of this institution in the past few years
and went on to say:
It is vital to the authority of this institution that we maintain the public perception of the integrity of Members of Parliament"—[Official Report, 26 May 1998; Vol. 332, c. 416.]
Doubtless, the Paymaster General recalls my right hon. Friend's remarks. In the light of those remarks the House made an amendment—originally tabled by my right hon. Friend, I believe—to the resolution that required Members who took up the option of a trip to Paris, Rome and so on to state in advance the purpose of their visit. That gives rise to my precise questions.
If a visit is for a specific business reason, why would it be taxable? Why is it not analogous to a business visit engaged in by any private sector employee who has correctly stated that the purpose of his visit is a business purpose, which counts as a business expense and is not taxable?
As the Paymaster General reminded the House, under clause 48 of the Bill, Members of the Scottish Parliament and Members of the Welsh Assembly have to be treated in the same way as Members of this Parliament; therefore, they will be subject to the same tax treatment if new clause 9 and amendment No. 25 are accepted. In the light of my previous question, it is material to ask whether that would apply even if the Scottish Parliament and the Welsh Assembly had not passed resolutions with an amendment

analogous to that which my right hon. Friend tabled in this House. In other words, might not Members of the Scottish Parliament and Members of the Welsh Assembly be exempted from tax simply by virtue of the analogy with membership of this House, even if they do not have to make the declaration on which procedures in this House will now be founded?
If that is the case, is it not an example of the very problem to which devolution generally gives rise? We seek to give the Welsh Assembly and the Scottish Parliament certain freedoms of manoeuvre and we forsake the ability to vet whether, in fact, those freedoms of manoeuvre are being used in a way that is responsible from the point of view of taxpayers. Things will have come amiss if it turns out that Members of the Scottish Parliament can do what Members of this House would have been able to do if my right hon. Friend's amendment had not been passed—get both free trip and tax exemption without having to state in advance why they are going on the trip and prove that it is a business affair. If I am mistaken in my assumption, I should be grateful for clarification from the Paymaster General.

9 pm

Mr. Peter Luff: I shall not detain the House for long. The new clause leaves rather a nasty taste in the mouth when one considers all the other new clauses that we are debating this evening which are designed to increase the tax take, and often to take more tax from very vulnerable members of our society. Here we have a group of Members of Parliament, who could hardly be described as vulnerable, seeking to obtain new tax advantages for themselves at the taxpayers' expense.
There is a strong sentiment in many parts of the House that the original resolution was a mistake, and that tax advantages should have been retained entirely to European institutions. That pass has been sold and the privilege has now been extended to other, national Parliaments. I am sceptical about whether people will find sufficient reason to justify the additional trips to national Parliaments. There would be a rough justice in maintaining the present tax concessions rather than handing money back to MPs for these freebies.
I note that the resolution to which the new clause refers enables MPs to be paid twice the corresponding civil service class A standard subsistence rate. The perk seems to be very generous as it is, and it would be perfectly reasonable to tax this extension of it. I do not accept the logic of the Paymaster General's opening remarks.

Mr. Fabricant: The Paymaster General opened the debate by saying that this is a small but necessary amendment, but I am not sure that it is necessary. At the moment, the provisions apply to Brussels, Luxembourg and Strasbourg, and only £44,500 out of a total budget of £250,000 has been spent, so clearly there is not much of a demand for the provision.
I said earlier that I wondered where all the Labour Members were. I notice that there are now two Labour Back Benchers present. I suggested that while we were debating the taxpayers' money, most of them were in the fleshpots of London. What bothers me is that after the new clause has been passed, they will be visiting the fleshpots of Berlin or the beaches just east of Athens, which will now fall under the aegis of the measure.
As my hon. Friend the Member for Mid-Worcestershire (Mr. Luff) said, the economy is contracting and the weakest in society are suffering. It is typical of this Government that the pigs are being lead to the trough at such a time.

Mr. Andrew Love: Does the hon. Gentleman accept that when the original motion came before the House and was fully discussed, only two or three members of the Opposition opposed it in the debate and, more importantly, voted against it when we went into the Lobbies?

Mr. Fabricant: The point is how many Labour Members voted against that motion. Two wrongs do not make a right. If only £44,500 out of a budget of £250,000 has been used, the provision is under-utilised. I put it to the House that these trips are yet more jollies, which seem to have been promoted since the Government came to power.

Mr. St. Aubyn: Will the Paymaster General tell us how much of the budget will be spent under the new provision? What will she do if too many of her colleagues demonstrate a propensity to indulge in this new form of subsidised travel so that the fund is exhausted before the end of the year?

Dawn Primarolo: Opposition Members need to keep this measure in proportion. As my hon. Friend the Member for Edmonton (Mr. Love) said, when the original motion was discussed the official Opposition did not oppose it. The normal procedure is to make such trips tax-exempt.
The hon. Member for West Dorset (Mr. Letwin), who spoke from the Front Bench, asked why we need a specific tax exemption at all. Several provisions in the Income and Corporation Taxes Act 1988 deal specifically with Members of Parliament; they reflect the nature of Members' duties. In most cases, deductions for any payment to meet the cost of Members' visits to European countries would be available under the ordinary schedule E rules, but it would sometimes be difficult to determine whether a visit would meet the qualifying conditions. Section 202 of the ICTA avoids that uncertainty by taking payments to Members of Parliament who have been authorised under the terms of the House scheme out of the scope of any tax charge.
As hon. Gentlemen will know, Members of Parliament will have to apply in advance and give the reasons for and purpose of their visit, and whom they will be meeting, before the travel is agreed by the House. The Fees Office will require information on the visit's purpose, location, duration and the persons or organisations to be met to be sure that the visit is within the resolution of the House.

Mr. Fabricant: I take the hon. Lady's point that Members will have to give an official reason, but what is to stop someone visiting an institution for three days and then spending a further week on the trip at their own expense having had the travel paid for them by the House of Commons—or should I say the taxpayer?

Dawn Primarolo: The rules of the House are laid down and Members are required to comply with them. As the hon. Gentleman well knows—I do not know whether

he is advocating an avoidance scheme—that is the correct way in which to behave. I am sure that he behaves in that way. To infer that any other Member would not comply with those requirements is ungenerous of him, to put it mildly.
The hon. Member for West Dorset asked whether legislation was needed to extend the Westminster tax scheme to the devolved Assemblies; the answer is yes. Without the amendment, the Westminster tax rules would not automatically apply to the devolved Assemblies, as should happen.

Mr. Letwin: The question I asked was whether if, for example, the Scottish Parliament did not agree an amendment or pass a resolution that would require Members of that Parliament to make the same declaration in advance, would they nevertheless be tax exempt?

Dawn Primarolo: My understanding is that the rules of the House on the terms under which Members of Parliament can travel, as provided under the resolution of the House, are clear, and that those rules extend, therefore, to Members of the Welsh Assembly and the Scottish Parliament.
The hon. Member for Mid-Worcestershire (Mr. Luff) felt that the proposal was yet another perk for Members of Parliament. As I said at the beginning of my remarks, it is important to keep this matter in perspective. In most circumstances, Members are treated for tax in the same way as employees generally. We are dealing with specific provisions to deal with one or two minor areas where the position of Members of Parliament does not fit easily into the general tax framework.
No more money is being made available. The budget of £250,000 for Members' visits to European institutions remains unchanged. The amendments simply bring the resolution of the House into the tax legislation—as was the practice of the previous Government. It is an entirely reasonable thing to do. I commend the new clause to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 6

GOODS FOR SALE ON BOARD SHIPS OR AIRCRAFT

'.—(1) For subsection (4) of section 1 of the Customs and Excise Management Act 1979 (goods for sale on board ships or aircraft to be treated as stores) there shall be substituted the following subsections—

"(4) Goods for use in a ship or aircraft as merchandise for sale to persons carried in the ship or aircraft shall be treated for the purposes of the customs and excise Acts as stores if, and only if—

(a) the goods are to be sold by retail either—

(i) in the course of a relevant journey, or
(ii) for consumption on board;
and


(b) the goods are not treated as exported by virtue of regulations under section 12 of the Customs and Excise Duties (General Reliefs) Act 1979 (goods for use in naval ships or establishments).

(4A) For the purposes of subsection (4) above a relevant journey is any journey beginning in the United Kingdom and having an immediate destination outside the member States.

(4B) In relation to goods treated as stores by virtue of subsection (4) above, any reference in the customs and excise Acts to the consumption of stores shall be construed as referring to the sale of the goods as mentioned in paragraph (a) of that subsection."

(2) This section shall be deemed to have come into force on 1st July 1999 but shall not have effect in relation to any shipment of goods before that date.'.—[Dawn Primarolo.]

Brought up, and read the First time.

Dawn Primarolo: I beg to move, That the clause be read a Second time.
As hon. Members will know, until last week, passengers on ferries, hovercraft and aircraft travelling within the European Union were able to buy duty-free goods, either on board or at duty-free shops at ports and airports. Within the EU, duty free came to an end on 30 June. All merchandise sold for take away must now be sold duty and tax paid. The new clause makes the necessary changes to the Customs and Excise Management Act 1979, bringing the Act's provisions into line with a decision taken unanimously, in 1991, by the previous Government and all other member states.
Several statutory instruments preceded the new clause to give effect in UK legislation to the abolition of duty free. From 1 July, goods sold to the travelling public for them to take away at the end of journeys within the EU are subject to VAT at the rate applicable in the member state of departure. Excise goods, such as tobacco and alcohol products, are chargeable with duty at the rate of the member state of departure or of the country of destination—depending on where they are sold.
The vast majority of journeys within the EU can benefit from the simplified procedures introduced by the Government, and from the concessions that we managed to extract from the Commission. In the few areas where the simplified arrangements cannot operate, discussions have been held with service providers to ensure the smooth introduction of the successor regime.
The new regime is working smoothly, but the Government will keep the implementation of the scheme under review to ensure that—should further amendment be required—we can assist the trade and the travelling public. That includes the possibility of returning to the Commission to press for any changes that may become necessary.
I commend the new clause to the House.

Mr. Letwin: I have already declared one potential interest in that a pet-food shop might be a client of my bank; I now declare another in case some airline or shipping company is also a client.
We accept that the measure is a corollary of the removal of duty free. In the Standing Committee to which the Paymaster General has already referred, we fully exposed the fact that both the previous Government and the then Opposition were partners in crime in bringing about that sorry state of affairs. Moreover, we have adequately exposed the history of the matter. Notwithstanding the protestations of the hon. Member for Wrexham (Dr. Marek), formerly the shadow Economic Secretary, the present Prime Minister came into office,

believing, for some reason unknown to man or beast, that he could change something that was locked in unanimous cement—why, I cannot imagine. To his great astonishment, and that of the British public, he found that he could not change it in the least. That, of course, represented a major triumph for the getting to the middle of Europe, sitting at the table and then being eaten thesis—why we have to be at the top table and retain our so-called influence.
Leaving that on one side, the devil is in the detail; that came out in our debates in Standing Committee. The provision makes it clear that the Paymaster General inadvertently misled the Committee in explaining the state of the law. It also demonstrates the depth of the mess. Paragraph (4A) of the new clause is the operative item. It tells us that in order to be "a relevant journey", a journey has to begin in the United Kingdom—that is uncontroversial—and has to have an
immediate destination outside the member States.
You were lucky enough to avoid the Standing Committee where two problems arose, Mr. Deputy Speaker; we christened them the Gibraltar problem and the Basle problem. The Gibraltar problem came to light only after the Paymaster General realised, and correctly and helpfully informed the Committee, that Gibraltar was not actually part of the EU. We had previously thought that it was a Casablanca problem. I had thought that, in order to get duty free, one would have to fly to Casablanca and then on to Gibraltar, because Casablanca is—I quote new clause 6(4A)—
an immediate destination
outside the EU, but it turned out that actually one only had to fly to Gibraltar. As long as one goes to Spain via Gibraltar, one will be able to collect duty free; if one goes to Spain directly, one will not.
9.15 pm
My hon. Friend the Member for Spelthorne (Mr. Wilshire) brought out the more vexed issue of the Basle problem. Should Basle airport be privatised, I would recommend that hon. Members consider investing in it early, because Basle has the lucky escape, so to speak, of being in two countries—Switzerland and France—at once, or in neither country at any time. As a result, if one wants to travel inside the EU to France and one happens to be clever enough to do it via Basle, one will also be entitled to duty free, even though one will be walking straight out into France.
Those were just two of the very large run of problems that were brought up, and that illustrated the complicated farce that the present proposals will give rise to. The Paymaster General, in an eloquent series of utterances, told the Committee that it was a puffed-up thing and that no one need worry because
Passengers would have to go to Casablanca, get off the plane, go into the airport and then rejoin the plane before take-off.
Then she said rhetorically to the Committee:
What am I supposed to do about duty-free goods outside the EU?"—[Official Report, Ninth Standing Committee on Delegated Legislation, 1 July 1999; c. 16.]
Unfortunately, today, the Paymaster General produces new clause 6 and subsection (4A), and we find that the relevant item is the "immediate destination". It turns out that there is no need to get off the plane at all; it is quite


sufficient for that place to be the first stop on one's journey. While one is there, or on the way there, the things that one is sold are stores in the technical meaning of the term and therefore may be sold duty free—and hey presto, the mess is not only a mess, but a mess the character of which, it turned out last week, the Paymaster General has not understood.
Undoubtedly, during the coming weeks and months, clever lawyers, clever airlines and so on will illustrate a heap of other such messes. I am sure that the Paymaster General will then return to the House and say that she never meant any of those things and that she really had quite a different clause in mind. It is just a pity that she has not brought that before the House today.

Mr. Edward Davey: Does the hon. Gentleman think that people travel for duty free or to get from A to B?

Mr. Letwin: The hon. Gentleman, unlike many of us in the House, is obviously not a skier. I have to tell him that there are lots of ways to get to Switzerland and lots of ways to get to France, and quite a lot of them end up by getting from A to B; it is just that one can choose to go via C, D or E. He would be very well advised to think of going via Basle in future.

Mr. David Wilshire: Thank you for calling me, Mr. Deputy Speaker. I have little doubt that you would rule a general debate about duty free out of order, so I shall confine myself to some specific matters that are raised by new clause 6, which are relevant to duty free in general but more specifically to the financial arrangements.
I am worried about this issue because my constituency is hard up against the boundary fence of Heathrow, which means that either many hundreds, or a 1,000 or so, constituents of mine depend on the duty free trade for their jobs. It also means that a significant number of customs officers who work at Heathrow are my constituents. Perhaps more important still, almost all my constituents—whether they travel for duty free or for other reasons—enjoy duty free, so I am very much involved in the entirety of this debate.
I am worried about new clause 6 because it gives effect to changes that will lead to redundancies in my constituency, and that will put pressure on the decreasing number of customs officers—decreasing because the present Government see fit to reduce the number of customs officers at Heathrow fairly regularly. In case the Paymaster General is tempted to say that new clause 6 will reduce the work load of customs officers, I would respectfully suggest that it will actually increase it because, previously, anyone passing through terminals 1, 2, 3 and 4 bought duty free and away they went, and the Customs and Excise people knew the score. Now, it will be necessary to decide, when a person leaves, for example, from terminal 1, where the heck they are going, or if they are arriving at terminal 1, where they have come from. As a result we shall need more, not fewer, customs officers—or very clear assurances from the Paymaster General that the existing customs officers will not be put upon unreasonably.
The new clause also confirms the Government's failure to prevent something happening that they trumpeted that they would prevent. It is a failure by the Government from

which they cannot hide on this occasion. When the Paymaster General replies, it will not be good enough for her to say, "We have obtained some wonderful concessions." I heard her try that trick last week.
I have had a good, long and hard look at the so-called wonderful concessions, and one of them bears mentioning. We were told that, if a ferry is coming across the English channel and someone happens to get himself into the shop before the vessel enters territorial waters, there is a concession that enables the individual to continue shopping. However, the small print states that, after three months the concession will disappear. So much for the Government's marvellous negotiating skills when they go to Brussels.
There are a number of matters concerning the new clause on which I seek clarification. I begin with the concept that it is founded upon the treating of goods in ships and aircraft as stores. Are we absolutely clear what we mean? The clause states that it is necessary to refer to section 1(4) of the Customs and Excise Management Act 1979. That is where we must turn to find our definitions, and I did that this afternoon.
Section 1 of the 1979 Act amounts to four and a half pages of various definitions. The section goes so far as to draw a distinction between a ship, which is defined, and a British ship, which is also defined. Search as I might, I could find no definition of an aircraft. If we are to be told in the new clause that we must refer to the 1979 Act for a starting point, where is the definition of "aircraft" from which we must work?
The Paymaster General may shake her head and think that I am being pedantic. However, she tells us that we must refer to the 1979 Act for a definition of "ship". I ask her to provide us with one for "aircraft".
Another feature that bothers me about the concept of treating goods as stores is that the new clause refers to "Goods … carried." It does not refer to goods loaded. Here, there is a problem. As it is made clear in the definition that we are talking about ships and not British ships, we are talking about any ship that comes into a United Kingdom port carrying goods.
Let us suppose that a Norwegian ship leaves Bergen and calls in at Newcastle. There is no problem because it has come from somewhere outside the European Union. However, it is carrying duty-free stores from Bergen which it will take back to Bergen. If I understand the clause correctly, if that ship returns directly to Bergen, there is no problem. It will not have landed anything but it will have duty-free goods on board. However, if that ship, having sailed from Bergen to Newcastle, calls in at Rotterdam before returning to Bergen, Customs and Excise will have to board it and make a list of every last thing on it and make those concerned pay duty, which they may or may not have paid back when they leave Rotterdam to go to Bergen. That is the nonsensical feature of referring to "Goods … carried" and not goods loaded. I shall be most grateful if the Paymaster General will tell us why the particular wording has been used.
I am also concerned about "relevant journey" as a definition. We are told that it equals
an immediate destination outside the member States.
This afternoon, the Paymaster General helpfully gave me a list of those parts of the European Union that are outside the customs union. One of them was Andorra.


Another that has been mentioned is Gibraltar. However, we are told that a relevant journey must take one outside a member state. Gibraltar is not outside a member state. It is part of the European Union, but it is outside the customs union.
The Andorran situation bears closer scrutiny. Last time I was there, huge numbers of French matrons driving Renaults and Citroens were bombing up and down the mountain, going up empty and coming down full, and seemed to be making numerous journeys every day. If they can go on doing that, why cannot we, when we go across the channel?
I am worried about whether the definition of "relevant journey" is accurate. My hon. Friend the Member for West Dorset (Mr. Letwin) referred to the Basle-Mulhouse problem. I shall not detain the House by rehearsing the stupidity of it, but when I was given a list of parts of the EU that are outside the customs union, I got wonderful places in the Caribbean and other bits of France all over the place, but no mention of that lovely little part of France that is occupied by Basle airport.
As the Paymaster General told us in Committee last week, if we travel into Basle airport from Heathrow, we can have all the duty free to which the allowances entitle us, but it is in France, so the information that we were given this afternoon was, I suggest, duff information. It did not include all those parts of the EU that are outside the customs union.
Will the Paymaster General therefore revisit the answer that she gave me and try again? Will she also tell me whether the definition of "relevant journey" as an immediate destination outside the member states is sufficient, given that she admitted that travelling to a part of France can be construed as a relevant journey? There seems to be some trouble with the drafting.
There is a further problem with the definition of "relevant journey". If we leave Tilbury and head for Tangier, that is a relevant journey. If, however, we have engine trouble on the way and put in in Vigo in northern Spain, do Her Majesty's Customs and Excise have to fly out to Vigo to say, "Oops, sorry, this is not a relevant journey any more, so we want to make sure that you give us all the excise duty and VAT."? If not, where is the qualification in the legislation that states that an unexpected diversion into an EU state does not trigger the problem that I am highlighting?

Mr. Fabricant: My hon. Friend contrasts the difference in travelling from one part of the EU to another, not involving the UK. He asked whether there had been a mistake in the drafting. Does he think that we have over-egged the European Union directive and made it a tougher regime than it need otherwise be?

Mr. Wilshire: I am certain that we shall behave as we usually do in the United Kingdom, and rigorously enforce measures while others shrug their shoulders and may or may not bother to enforce them. That is one of the reasons why we suffer time and again at the hands of Brussels bureaucrats, when others get away with ignoring them. Again, Mr. Deputy Speaker, if I went down that track for much longer, you would rightly call me to order.
Another phrase that concerns me in the wording of the new clause is "for consumption on board". We have not had an explanation why the Government suggest that.

I am all in favour of as many concessions as we can get, but this seems illogical. The reason why our harmless bit of fun has been taken away, as I understand it, is that the Brussels bureaucrats decided that it was against the interests of the single market for us to be allowed to buy duty free as we travel round the EU.
If we travel from Paris to London, we are travelling within the EU, but the Brussels bureaucrats say that it is perfectly all right for us to have duty free, provided that we consume it. That is daft. If we can get a concession for consumption, why not other concessions?
The exception is incredibly difficult to enforce. Someone travelling on a ferry may be thirsty and buy lots of drinks, only to be taken ill because the sea is rough. What will he do? He has bought drinks to consume, but has not consumed them. Will customs officers tear around the ship checking what people have eaten, drunk and smoked as they make their journey and demand duty if they have not finished a bottle? We need an explanation.
9.30 pm
Another thing bothers me about the words "for consumption on board". We now know that duty-free prices at places such as Heathrow were seriously inflated—we are talking about £5 on an £8 bottle of spirits. We are granting an exception so that ferry companies and aircraft operators can sell duty-free drinks to passengers. Do the Government plan to make it compulsory for bar price lists and menus to make it clear that the person serving drinks is taking advantage of a duty-free perk? If they do so, there would be a warning of some sort and, when people paid, they would not make the mistake of comparing bar and menu prices with those in what was the duty-free shop and is now the duty-paid shop to judge whether they were being ripped off.
What do the Government have in store for Eurostar in respect of the words "for consumption on board"? When people catch a ferry from Dover to Calais or fly from Heathrow to Charles de Gaulle what they eat, drink and smoke on the ship or the aircraft is duty free—that is the concession—but it is not if they catch a train. That also is illogical. Perhaps the Paymaster General can tell the House why Eurostar and Le Shuttle have been singled out for such particularly nasty treatment.

Mr. James Gray: Has my hon. Friend noticed the astonishing urgency with which the Minister's Parliamentary Private Secretary is dashing up and down to pick up bits of briefing? He is obviously hitting a few bull's eyes.

Mr. Wilshire: I am fully expecting detailed answers to all my questions. Although some Labour Members may think that I am being a bit of a nuisance, Mr. Deputy Speaker—[Interruption.] I apologise, Madam Deputy Speaker—[Interruption.] I apologise, Madam Speaker; you can tell that I have been carried away by my enthusiasm.
The new clause raises two other issues—the safety of aircraft and environmental damage. Profit margins are being cut and the holding down of prices in what were duty-free shops will work only if sales increase. There is now no limit on what people can buy duty paid at Heathrow airport or wherever and it therefore follows that it is perfectly possible to buy a large number of bottles of spirits.
When I raised that issue with the Paymaster General in Committee last week, I received the answer that airlines would not allow vast numbers of bottles to brought on board. However, the number does not have to be vast. Someone with no hand luggage could easily bring four or five bottles on board instead of one. That would be within most airlines' limit. Alternatively—this has already happened—someone could buy a large number of bottles and arrange for the aircraft operator to carry them in the hold.
I represent part of Heathrow, and I am worried by the thought of large quantities of inflammable liquid in glass bottles hurtling about the skies. I believe that we have opened up a safety problem and I should be grateful if the Paymaster General would address it. I am also concerned about the extra weight that will be carried by aircraft. It would be easy to say that I am making another pedantic point, but if the weight carried by an aircraft increases the burn of aviation fuel increases and further damage is done to the atmosphere and the ozone layer.
There is a simple solution to the problem that the new clause causes: the Government should allow the sale of duty-paid products at lower foreign prices to arriving passengers at British airports. They would not then need to go to Charles de Gaulle airport in Paris to stock up with huge numbers of cheaper bottles. They could fly with less luggage, the aircraft would be safer and there would be less chance of environmental damage. I commend that approach to the Minister.
So many messages have been passed to the Paymaster General that I have probably asked enough questions of her. I see that another answer is on its way to her as I speak. I hope that she will not fall into the trap of saying simply that I am being difficult, or trying to wile away a few minutes. All my questions are serious. They raise difficulties about the wording of the clause and the workability of a forthcoming Act of Parliament. All of them need clear answers, although some were technical and, if the answers being passed to the hon. Lady do not answer them in detail, I should be grateful to receive a written reply, copied to the Library.
I deplore what has happened. It has spoiled the fun of many. It causes redundancies in my constituency, and it is yet another reason why the EU's powers need to be taken away. But I am a realist. What has happened has happened, and we must get the Bill right. Will the Minister repeat the undertaking that she gave in Committee to introduce the changes with the lightest possible touch from Customs and Excise in the early stages, when problems will arise? Will she repeat her undertaking to review absolutely everything over the next three to four months—not just what suits her—to see whether we can learn from the mistakes that the Government have undoubtedly made?

Dawn Primarolo: I will not say that the hon. Gentleman was wasting time, and he was wrong to suggest that I should. I think that he is misguided, and that he has not paid attention to the fact that the successor regime operates already. He obviously has not read the newspapers or the undertakings given by suppliers about the possibility of job losses, but I understand entirely why he, like any good constituency Member, is particularly concerned about the future employment of his constituents.
The hon. Gentleman was present when I made it clear that preparations for the abolition of duty free and arrangements for the successor regime were working smoothly for traders and travellers. I am happy to repeat that Customs and Excise will work closely with the trade and will apply the light touch for which he asked. We shall review the work of the successor regime in the light of experience. The hon. Gentleman will have seen that many of the disasters that he predicted, and which he continues to forecast, have not happened.
The hon. Gentleman asked why on-board consumption was VAT free. The Commission announced on 2 October 1998 that member states could continue to allow goods consumed on board to be relieved of VAT. I explained in Committee that the Government would allow that to happen.

Mr. Wilshire: The Minister may recall that I asked whether consumption was exempt of tax alone or of tax and duty. She may have made a slip of the tongue, but I understood her to say that goods would be free of VAT. Will they be free of VAT alone, or duty too?

Dawn Primarolo: I am sorry; I misheard the hon. Gentleman. I thought that he was asking about VAT only. The position that I set out earlier on excise duty and VAT is correct.
The hon. Gentleman asked about the immediate destination provision. As I said in Committee, if a flight involves a stop-over outside the European Union, travellers have a limited entitlement to duty-free goods. As he well knows, it is a very limited entitlement and may not be the bargain that they thought they would get.
Over the next few months, the staff of Customs and Excise will concentrate on helping the industry to adjust to the new regime. In the long term, Customs and Excise does not expect the duty-paid regime to be any more demanding of its resources than the former duty-free regime.
The hon. Gentleman may have seen the report in The Sunday Telegraph on the decision of British Airways not to sell alcohol and tobacco on flights, but to continue to offer other goods under the EU restrictions.
As I said to the hon. Gentleman in Committee, safety is a matter for the airline companies, which are perfectly capable of enforcing a reasonable attitude towards the carrying of duty-paid goods, and are doing so.
The hon. Gentleman's final point was on triangular routes. A ferry may move through several duty regimes. As I said in Committee and in my opening remarks, the simplified arrangements apply to the majority of journeys. However, in the exceptional case of triangular routes, fuller accounting procedures are required. Those operators are already used to dealing with more complex accounting of their stores and sales under the old regime. The problem that the hon. Gentleman forecasts is not manifesting itself in the spectacular way that he continues to suggest.
The Government would have preferred more time to work on a successor regime, but it was not available to us. We would have preferred it if the previous Government had made some preparation for the abolition of duty free, for which they voted, but they did not. In the circumstances, we have a regime that has been welcomed by the trade, that is working well for the travellers,


and that is ensuring that the transition from duty free to the new regime is as smooth as it could possibly be. I commend the new clause to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 14

WORKS OF ART, ANTIQUES, ETC.

'.—(1) In subsection (4) of section 21 of the Value Added Tax Act 1994 (which treats as reduced for VAT purposes the value of goods falling within subsection (5) of that section and imported from outside the EC)—

(a) at the beginning there shall be inserted "Subject to subsection (6D) below,";
(b) for "14.29 per cent." there shall be substituted "28.58 per cent."

(2) For subsections (5) and (6) of that section there shall be substituted the following subsections—

"(5) The goods that fall within this subsection are—

(a) any work of art;
(b) any antique, not falling within paragraph (a) above or (c) below, that is more than one hundred years old;
(c) any collection or collector's piece that is of zoological, botanical, mineralogical, anatomical, historical, archaeological, palaeontological, ethnographic, numismatic or philatelic interest.

(6) In this section 'work of art' means, subject to subsections (6A) and (6B) below—

(a) any mounted or unmounted painting, drawing, collage, decorative plaque or similar picture that was executed by hand;
(b) any original engraving, lithograph or other print which—

(i) was produced from one or more plates executed by hand by an individual who executed them without using any mechanical or photomechanical process; and
(ii) either is the only one produced from the plate or plates or is comprised in a limited edition;


(c) any original sculpture or statuary, in any material;
(d) any sculpture cast which—

(i) was produced by or under the supervision of the individual who made the mould or became entitled to it by succession on the death of that individual; and
(ii) either is the only cast produced from the mould or is comprised in a limited edition;


(e) any tapestry or other hanging which—

(i) was made by hand from an original design; and
(ii) either is the only one made from the design or is comprised in a limited edition;


(f) any ceramic executed by an individual and signed by him;
(g) any enamel on copper which—

(i) was executed by hand;
(ii) is signed either by the person who executed it or by someone on behalf of the studio where it was executed;
(iii) either is the only one made from the design in question or is comprised in a limited edition; and
(iv) is not comprised in an article of jewellery or an article of a kind produced by goldsmiths or silversmiths;


(h) any mounted or unmounted photograph which—


(i) was printed by or under the supervision of the photographer;
(ii) is signed by him; and
(iii) either is the only print made from the exposure in question or is comprised in a limited edition;

(6A) The following do not fall within subsection (5) above by virtue of subsection (6)(a) above, that is to say—

(a) any technical drawing, map or plan;
(b) any picture comprised in a manufactured article that has been hand-decorated; or
(c) anything in the nature of scenery, including a backcloth.

(6B) An item comprised in a limited edition shall be taken to be so comprised for the purposes of subsection (6)(d) to (h) above only if—

(a) in the case of sculpture casts—

(i) the edition is limited so that the number produced from the same mould does not exceed eight; or
(ii) the edition comprises a limited edition of nine or more casts made before 1st January 1989 which the Commissioners have directed should be treated, in the exceptional circumstances of the case, as a limited edition for the purposes of subsection (6)(d) above;


(b) in the case of tapestries and hangings, the edition is limited so that the number produced from the same design does not exceed eight;
(c) in the case of enamels on copper—

(i) the edition is limited so that the number produced from the same design does not exceed eight; and
(ii) each of the enamels in the edition is numbered and is signed as mentioned in subsection (6)(g)(ii) above;


(d) in the case of photographs—

(i) the edition is limited so that the number produced from the same exposure does not exceed thirty; and
(ii) each of the prints in the edition is numbered and is signed as mentioned in subsection (6)(h)(ii) above.

(6C) For the purposes of this section a collector's piece is of philatelic interest if—

(a) it is a postage or revenue stamp, a postmark, a first-day cover or an item of pre-stamped stationery; and
(b) it is franked or (if unfranked) it is not legal tender and is not intended for use as such.

(6D) Subsection (4) above does not apply in the case of any goods imported from outside the member States if—

(a) the whole of the VAT chargeable on their importation falls to be relieved by virtue of an order under section 37(1); or
(b) they were exported from the United Kingdom during the period of twelve months ending with the date of their importation."

(3) This section has effect in relation to goods imported at any time on or after the day on which this Act is passed.'.—[Dawn Primarolo.]

Brought up, and read the First time.

Dawn Primarolo: I beg to move, That the clause be read a Second time.
The new clause enables the United Kingdom to fulfil its legal obligations under the seventh VAT directive, as incorporated in the EC sixth VAT directive. That directive requires member states to apply a minimum rate of VAT


of at least 5 per cent. to a wide range of imported works of art, antiques and collectors' pieces. The new clause implements the undertaking given by the previous Government to increase our rate to the minimum level.
Since 1995, the United Kingdom has applied a rate of 2½ per cent. to a limited range of works of art, antiques and collectors' items. Until the UK implemented the seventh directive, those products had been relieved from import VAT. That rate of 2½ per cent. has been available to the UK only under a transitional derogation, which was time-limited to 30 June 1999.
9.45 pm
Despite our inheritance from the previous Government, this Government have decided that, on balance, it would be better all round for our 2½ per cent. rate to be more widely available in the Community. We have fought that case long and hard in Europe, arguing that the interests of both the United Kingdom and the Community generally would be best served by 2½ per cent. being made the minimum rate available to all member states. However, we have also pressed the case for the UK to retain its special rate for a further period in the event of our failing to reach agreement with our European partners.

Mr. Fabricant: Will the Paymaster General give way?

Dawn Primarolo: May I finish what I am saying? After that, I shall be happy to respond to any points that the hon. Gentleman wishes to make.
Either of those proposals would have required both the support of the European Commission and the unanimous agreement of all other member states. Despite our efforts, it became clear that there would be little support for the UK position, and it has therefore not been possible to secure the unanimous agreement that was necessary to bring about the change.

Mr. St. Aubyn: Will the Paymaster General give way?

Dawn Primarolo: I want to finish what I am saying. I shall then be happy to respond to any points that hon. Members make in the debate.
We have throughout worked closely with the art trade. We fully realise the importance of the British art market and its worldwide standing. For those reasons, we propose to ease the effects of the increase in the rate of import VAT by widening the scope of the new 5 per cent. rate to a broader range of art works. That rate will apply to the full range of items that may be entitled to a reduced rate of import VAT under the sixth directive.

Mr. Andrew Tyrie: Will the Paymaster General give way?

Dawn Primarolo: I should be grateful if the hon. Gentleman would let me put the case. I shall, of course, respond to the points that hon. Members make in the debate. We engaged in some discussion about the matter at the outset, and I know that the hon. Gentleman is keen to take part.
Even with the increase, there is still no lower rate of import VAT in Europe on works of art. It is the minimum that the Government need to do to comply with the

absolute legal obligation that we inherited from the last Administration. The package offers a much wider coverage of the reduced rate for art imports and should ensure that the UK remains an attractive place for the art trade.
Our proposals have been welcomed by the British art market, which has acknowledged the length to which the Government went to try to undo the damage done by their predecessor. I commend the new clause.

Mr. St. Aubyn: I am grateful to my right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke) for drawing attention to the last Government's difficulties. Their decision to accept the halfway house that has persisted until now was a compromise that was, in effect, forced upon them. It was always envisaged that the economic impact of a 2.5 per cent. VAT rate would be properly assessed by the European Union, and it was reasonable to suppose four years ago that, when the matter came up for review this year, our partners would understand the effect that the rate has had on the London art market in particular.
The Paymaster General asked us to applaud her efforts. The fact is that the widening of the 5 per cent. band will not affect the major issue, which is where international art sales take place. It is in the sales of Impressionist paintings and old masters that the really attractive big money is being spent. Those are exactly the sort of sales which, in the future, will take place almost exclusively in Geneva, New York and other places outside the European Union. It is the lucrative end of the market that London will lose, and the consequences for London will be severe.
The Paymaster General has failed to tell us in this debate or the previous one how many jobs she expects the market to lose as a result of the measure. There can be no doubt that jobs will be lost. It may not be as many as the 5,000 predicted earlier—let us hope that that is the case—but there will be job losses.
The Paymaster General's comment that the new measure is tax neutral beggars belief. The only sense in which it is tax neutral is that the amount of tax that is raised may be no more than the amount that was raised under the previous system. Any situation in which the tax rate doubles but the amount of tax collected remains the same is, by implication, one in which the volume of transactions has, in effect, halved. Will she confirm—I hope she is listening—that in the key areas, including the old masters, the Impressionists and other parts of the value end of the art market, the implication of her prediction on revenue is that the value of sales in the United Kingdom will halve as a result of the increase in tax?
In Committee, I suggested to the Paymaster General and her advisers that they should look at the exemption for culture under the sixth VAT directive. There is a clear exemption for cultural activity in the European Union—VAT should not apply to cultural activities where those are not to the disadvantage of other member states.
It is widely agreed that, in the case of the art market, any low rate in the UK is not to the disadvantage of other member states because we are in competition not with them, but with Geneva, New York and other centres where there is no tax to pay. Why is it that before we did not impose tax on art sales in this country? It is because, fundamentally, it is not a financial transaction but a


cultural exchange. Therefore, under the VAT directive, there is a specific exemption, which could be explored with our other partners. On that basis, a wide exemption could be granted to the market in this country.
Four years ago, we chose not to go down the contentious legal route to protect our art market. We chose to enter a compromise deal—

Mr. Geraint Davies: Will the hon. Gentleman give way?

Mr. St. Aubyn: I will finish in a moment; I shall let the hon. Gentleman in in a moment.
We chose to enter a compromise deal on the basis that, within four years, the evidence would be clear that the rate was damaging our market and not helping anyone else's. We assumed that our partners in Europe would accede to our request at the end of the period to cut the rate again. Having failed to do so, we should be going down the legalistic route. We should be trying to protect a valuable business in this country. It is the Government's failure to do so, despite their promises in recent months, that is the real disappointment. That is why our questions deserve a proper answer from the Paymaster General.

Mr. John Townend: I do not know whether I heard the Paymaster General correctly, but I got the impression that she said that the 5 per cent. rate was not continuous but for a limited period. If that is so, will she tell us how long that period is and what the rate is likely to increase to?
The Paymaster General surprisingly said that the decision to double the VAT rate was welcomed by the art trade in this country. I find that incomprehensible because the only people who will welcome the VAT increase in London are art dealers in New York and Switzerland.
The terrible situation has shown us one thing. As my hon. Friend the Member for Guildford (Mr. St. Aubyn) said, naturally, we expected from an equitable point of view that our European colleagues, having looked at the effect of the 2.5 per cent. rate, would see reason and allow us to continue at that rate. As has been said many times, it is not a question of harmonisation to remove unfair competition with other countries in Europe. There are only three international markets in the world: London, Geneva and New York. Once the change is made, all that will happen is that the European Union as a whole will lose out in the international art market to America and to Switzerland. Does not that fact demonstrate—to the House and to the British people—that, when our vital national interests are at stake, we cannot depend on Europe?
It does not matter whether the previous Government made a great mistake in agreeing the change or the current Government are making a mistake now. The current Government said, "Things will be different: we are at the heart of Europe. We shall persuade our European partners to see reason." In this case, we have reason on our side, but the Government have failed completely.

Mr. Geraint Davies: Today, we have heard much froth and rubbish from Opposition Members on the issue to which there are two aspects: first, VAT on certain items

will be increased from 2.5 to 5 per cent.; secondly, there will be a VAT reduction on other works of art. However, we have not heard much from Opposition Members about the VAT reduction.
Let us get our facts right. Earlier, my hon. Friend the Member for Shipley (Mr. Leslie) asked the shadow Paymaster General, the right hon. Member for Wells (Mr. Heathcoat-Amory), whether he was Paymaster General in 1994, when the previous, Conservative Government agreed the VAT increase from 2.5 to 5 per cent.—about which Conservative Members have been whingeing today, but which they agreed—but he said that he was not Paymaster General at that time. [Interruption.] However, all the records—such as old lists of ministerial responsibilities—seem to say that, in September 1994, David Heathcoat-Amory Esq. was the Paymaster General.

Mr. Heathcoat-Amory: rose—

Mr. Davies: Obviously the right hon. Gentleman has some sort of memory problem. Perhaps that is why he has a majority of only 528. [HON. MEMBERS: "Give way."] I shall certainly give way, if the right hon. Gentleman would like to correct the record.

Mr. Heathcoat-Amory: I am grateful to the hon. Gentleman for graciously giving way, as he mentioned me. I should like to make it absolutely clear, and beyond doubt, that I had nothing to do with the negotiation of those matters or the decision, all of which were dealt with by my noble Friend Lord Cope. Will the hon. Gentleman accept that assurance?

Mr. Davies: Does that mean that the right hon. Gentleman knew nothing about it, and had no responsibility for it whatsoever? In answer to the question of my hon. Friend the Member for Shipley, the right hon. Gentleman said that, in 1994, he was not Paymaster General—but he was. Could we get that matter clear, for the record? What sort of Cabinet was involved in the decision? Regardless of whether the decision was taken by him, one of his colleagues or someone who has subsequently slipped off the electoral terrain—as I said, the right hon. Gentleman has a majority of only 528—with such talk about positions previously held, one wonders whether he will be in the House for very much longer. The simple fact is that British art will be successful for much longer than he will be.
There will be a marginal tax increase. Although no one welcomes the increase—which was introduced by Conservative Members—to counteract it, the Government are introducing all types of concessions. There will be a massive reduction in the marginal rate of VAT, from 17.5 to 5 per cent., on tapestries, ceramics, enamels and photographs.
More widely, there is a new generation in a thriving antiques industry, which will generate many new jobs. However, all we hear from whingeing Opposition Members—crying crocodile tears, moaning and rolling around on the Opposition Benches—is, "What about the


job cuts?" The Government are reviving the industry, while dealing with the legacy of tax constraints that we inherited from the previous Government.

Mr. St. Aubyn: Will the hon. Gentleman give way?

Mr. Davies: Perhaps we can now move on. I would have taken the hon. Gentleman's intervention, but he refused—from absolute embarrassment—to take mine.

Mr. Tyrie: I simply want to ask the Paymaster General a few questions that I was unable to put in an intervention.
First, will the Paymaster General clarify the assumptions behind her forecast of a £10 million revenue increase from the VAT increase from 2.5 to 5 per cent? Will she state categorically whether those assumptions include the sharp fall in business that is likely to occur because of the VAT increase?
Secondly, will the hon. Lady commit herself to the review that my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) asked for? Will the Government go to Brussels and press for another report after a couple of years, which will show the damaging effect that the increase in VAT will have in Britain and across the European market? The market will move out of Europe to New York and Tokyo. Will she commit herself to pushing for a review of this absurd policy after a couple of years?

10 pm

Mr. Christopher Gill: My hon. Friends the Members for East Yorkshire (Mr. Townend) and for Guildford (Mr. St. Aubyn) have made a good case on behalf of the London art market and shown how the tax will adversely affect it. I have every sympathy with their point of view and the strength of their argument.
The Government are fully signed up to the European Union. Instead of looking at the issue in the narrow confines of the British interest, why has it not been possible for the British Government to persuade the European Union that not increasing the tax is in the interests of the European Union as a whole, not just the London art market? London is part of the broader picture. Why has it not been possible to persuade the powers that be that the change would damage the European Union? The argument should be advanced on a broader plain. We need to explain to our European partners that the opposition is in New York and Geneva. By damaging the London market, all that we are doing is damaging Europe.

Mr. Fabricant: I endeavoured to intervene on the Minister earlier, but she was determined not to let anyone in. When we debated the subject on the earlier narrow Ways and Means motion, she said that we would be quite competitive at 5 per cent., because, apart from Denmark, other countries had a higher rate. The problem is that those countries are not the competitors. The competitors are Basel, Geneva and New York. What is the general sales tax for art works in New York state or Geneva?

Mr. Heathcoat-Amory: We debated the issue earlier today, but there are some questions outstanding, to which my hon. Friends have referred. I have two questions.
It is regrettable that VAT on imports is to be doubled. That will be a heavy and savage blow to the British art market. No one has made a secret of the fact that we are

dealing with a pre-existing directive. I am happy to reassure the hon. Member for Croydon, Central (Mr. Davies) again that it had nothing to do with me. The negotiations took place while my predecessor was Paymaster General, but I do not dissociate myself from my noble Friend Lord Cope, who secured an undertaking that the Commission would conduct a study before the derogation ran out. That study was forthcoming and showed that damage had been caused even at the existing levels of VAT on art imports.
The study also mentions that in the 1950s Paris was the biggest art market not just in Europe, but in the world. It has been damaged by a combination of the droit de suite—a levy on the resale of works of art—and the imposition of VAT on art imported into France. That is a matter for the French Government, but the same levels of VAT are to be imposed on the UK market despite the damage that has been shown in the study by the consultants. That conflicts with article 2 of the treaty of Rome, as amended, which says that the European Union should have a number of objectives, the first of which is to promote economic and social progress and a high level of employment. It has been shown by the study that the proposal will cost jobs in the EU, and will undoubtedly do further economic damage. It is my contention that the European Commission is breaking the treaty in persisting with its intention to bring the minimum level of VAT on art imports up to 5 per cent.
My first request, which has been echoed by my hon. Friends, is that the Commission should be asked to conduct a further study after the VAT directive is enacted to ensure that no further damage is done and, if damage is inflicted, that action will be taken. That is a modest request to make of the Government.
My second request concerns the linked matter of droit de suite. Happily, that separate threat has been deferred. However, it has only been postponed, and I would like to know on what terms it has been deferred, whether it will come back, whether further technical work will be undertaken and whether further political consultations are taking place.
The art market needs to know the answers to those questions tonight. I asked them earlier today without success. Perhaps the Minister will take this opportunity to answer those two specific questions.

Dawn Primarolo: We can sum up the approach of the right hon. Member for Wells (Mr. Heathcoat-Amory) as, "It is nothing to do with me. I was just a member of the Government of the time—or, at least, I was voting for them."
The previous Government committed the United Kingdom to an absolute legal obligation to increase VAT on works of art from 2.5 per cent. to 5 per cent. It is true that the previous Government asked the Commission to undertake an independent study of the impact of the imposition of 2.5 per cent. VAT on the art market. However, the study was not made conditional on anything. It was not put in the directive, nor was it said that the derogation should not expire until the study was completed.
The study was completed independently, and arrived late. It showed that there were grounds for continuing to argue the case that the increase from 2.5 per cent. to 5 per cent. should not take place. The Commission ignored that,


and made its own recommendations. The Government were faced with an absolute legal obligation to increase the VAT to 5 per cent, which could not be resisted. There was simply no practical choice but to implement the increase. We were faced with the legal obligations signed up to by the previous Government.
Earlier, I referred to the cost to the British art market, how much revenue would be raised by increasing the levy to 5 per cent. and the results of the concession. The British Art Market Federation has said that it believes that the overall package will enable the art market to remain as competitive as it is already. Therefore, the Government's figures of a £10 million rise, as well as the cost of the concession, will result in a revenue-neutral position. [Interruption.] I am not surprised that Conservative Members do not want to listen, because their crocodile tears at this late stage are pathetic. The Government have fought hard, working in partnership with the art market, and we continue to press the case. We made it clear to the Commission that we want to pursue the impact on the art market of increasing VAT.
The British art market is of value to Europe. We should think not about our art market versus the rest of Europe but about sales in the international market. I am happy to give the House the undertaking that the Government will continue to fight for the best interests of the art market. We deeply regret the fact that the previous Government were so foolish as to create an absolute legal obligation with which we now have to comply, but there is no alternative.
The package that we have proposed will enable the art market, so it tells us, to remain competitive and vibrant and attract new trade.

Mr. Townend: The Paymaster General said that the art market has said that the reductions on ceramics and tapestries—which are minor parts of the market compared with painting—will allow it to remain competitive. Who exactly has said that?

Dawn Primarolo: I could send the hon. Gentleman a copy of the British Art Market Federation's press release in response to our proposals. I am sure that he would be delighted to read it and to congratulate the Government on having done our very best—given that we were forced to increase VAT—to put together a package that mitigates the impact and helps the art market. I commend the new clause to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 5

PREPARATIONS ETC. OF MEAT, YEAST OR EGG

'. Schedule 8 to the Value Added Tax Act 1994 (zero-rating) shall have effect, and be deemed always to have had effect, as if in Group 1 (food), in Note (6) (which provides that certain items which override the exceptions listed in that Group relate only to item 4 of the excepted items (non-alcoholic beverages)) for "Items 4 to 6" there were substituted "Items 4 to 7".'.—[Dawn Primarolo.]

Brought up, and read the First time.

Dawn Primarolo: I beg to move, That the clause be read a Second time.
The new clause corrects an error made in the transcribing of a cross-reference from the Value Added Tax Act 1983 to the Value Added Tax Act 1994, unintentionally extending zero-rating to VAT on food to include pet food, although it has been this Government's, the previous Government's and the industry's interpretation that VAT was to be applied at 17.5 per cent. It restores the position to what everyone understood it to be until Customs and Excise recently discovered the error. I commend it to the House.

Mr. Letwin: The new clause gives us a marvellous illustration of what is wrong with VAT legislation. The drafting mistake that the new clause remedies arose because of a quadruple negative. In the first place, everything is subject to VAT, but schedule 8 zero-rates—makes not VATable—certain items, including those in group 1, item 2 of which is animal feeding stuffs and pet foods; but certain items in group 1 are excepted and are not not VATable; but there is an override for preparations and extracts of yeast, meat or egg, which are not not zero-rated, or not not not VATable, making them not VATable, or zero-rated; but the override is overridden by note (6), which restricts some of the overrides to beverages such as Bovril, the favourite drink of my hon. Friend the Member for Lichfield (Mr. Fabricant). That makes the other meaty preparations on that list not not not zero-rated, in which case, they are not not not not VATable—in which case, they are, of course, VATable. All of that was meant to apply to pet foods—poor old pet foods.
Unfortunately, that string of quadruple negatives quite defeated Her Majesty's Government's magnificent legal advisers—and, we are to assume because no challenge was levelled, the entirety of the private sector, until very recently. Now, Her Majesty's Government have splendidly caught up with the fact after the fact; but they hardly needed to because, as my hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor) pointed out earlier this afternoon, the sixth VAT directive probably had direct effect throughout, so there was probably no need for the change.
That brings me to my questions. Does the Paymaster General know what the yield of the measure will be if it has been correctly drafted? I asked her this some hours ago, when we debated the Ways and Means motion, but she failed to answer—no doubt it was an oversight. Perhaps she will answer now.

Mr. John Bercow: The challenge my hon. Friend poses the Paymaster General is entirely unexceptionable, so I assume that she will be able to answer it. However, does my hon. Friend agree that the hon. Lady does not have to look into the crystal ball when she can read the book? Given that, in answer to my hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor), the Paymaster General said that this tax had not only been incurred legally, but had been paid by the relevant sector in previous years, should she not be able to tell us how much was paid in the financial year 1998-99, and do so immediately?

Mr. Letwin: My hon. Friend is absolutely right. We are discussing an opportunity loss for the Exchequer and, since we can know what revenue came to the Exchequer


through pet food VAT last year, the Paymaster General should be able to estimate what the opportunity loss would be were the new clause not added to the Bill—always assuming it had any value in the first place.
My next question is whether the drafting is now right. I should not bother to ask were it not for the fact that the whole thing is so incomprehensible that it defeated all the draftsmen to begin with, and it might be that there is a mistake this time.
I should also like to know what is a packaged food for birds. Packaged foods for birds will be caught, but packaged foods that happen to be eaten by birds but are not for birds will not be caught. This is just like the Medicines Control Agency: a great deal of fuss and bother has been caused by the difficulty of determining what something is for before one has eaten it. Whether the thing in question is caught depends to a great extent on whether one is a bird or a human being.
I hope that the Paymaster General can tell us that she is confident that, this time around, she and her officials have got the drafting right, because what we have here is legislation that is a dreadful mess. That is nobody's fault—the blame must be spread across the past 50 years—but the situation has been greatly worsened by the sixth VAT directive. What we should have been dealing with this evening is a proper clearing up of some ghastly architecture; unfortunately, what we have is just another piece of patchwork.
I hope that the Paymaster General will tell us, first, that the provision yields some serious revenue and, secondly and crucially, that it has been correctly drafted this time.

Dawn Primarolo: The answer to the hon. Gentleman's second question is that I sincerely hope that the provision is correctly drafted this time and that the transcription error has now been corrected. The yield is £185 million a year, which is not an insignificant sum, so it seemed to be a good idea that the Government should maintain the revenue.
I know that it is late, but I think that the Opposition should consider calming down, and agreeing that the new clause makes sense and represents sensible management.I apologise to the House for the previous Government having made the error, and I hope that the Opposition will now agree to its being corrected.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 3

NON—TAX PAYERS

'Nothing in the Income and Corporation Taxes Act 1988 shall have the effect that any tax payer whose total income is below the personal allowance threshold for income tax purposes shall pay income tax.'.—[Mr. Quentin Davies.]

Brought up, and read the First time.

Mr. Quentin Davies: I beg to move, That the clause be read a Second time.

Madam Speaker: With this, it will be convenient to discuss the following: New clause 18—A pensioner's tax exemption certificate—

'.—(1) The Inland Revenue shall be given the power to issue tax exemption certificates to taxpayers who, at any time within that year are of the age of 65 or upwards, whose income does not exceed £6,000 (Tax Exemption Certificate Limit), and is likely not to exceed that limit in the three following years.

(2) The Tax Exemption Certificate shall:

(a) entitle the taxpayer to receive income from all sources without deduction of income tax
(b) exempt the taxpayer from dealings with the Inland Revenue, save to confirm the level of income when renewing the Tax Exemption Certificate
(c) require the taxpayer to notify the Inland Revenue by 5th October following the end of the tax year where their income has exceeded the Tax Exemption Certificate limit
(d) be granted for a period of four consecutive years.

(3) The Tax Exemption Certificate limit shall be automatically uprated every year in accordance with section 257 of the Taxes Act 1988.'.

Amendment No. 2, in clause 19, page 9, line 12, leave out '20' and insert '10'.

Mr. Davies: I remind the House that I have interests that are listed in the register, but none of them is relevant to this debate or to earlier debates.
This is a crucial point in the proceedings. There is no need for any political banter or point-scoring. In tabling new clause 3 and amendment No. 3, we contend that the Government, in only two years, have inflicted immense damage on our income tax system. They have brought about a disreputable shambles by making changes that bear no relationship to the principles that ought to characterise a tax system. In a fair, just and economically sensible and successful society, a tax system ought to be based on the principles of justice, clarity and rationality. We now have an income tax system that is brutally unfair, discriminatory—particularly against the most vulnerable people—and incomprehensibly irrational and opaque.
I turn first to the callously unfair aspects of the tax system, as modified by the new Labour Government. The result of their measures is that people at the bottom of the income scale, whose incomes are so low that they do not even reach the income tax threshold, are now subject to income tax. That is already having a devastating effect on the finances of extremely—indeed, I would say almost pathetically—poor people.
Let us consider someone whose total income is £5,000 a year, which is derived from dividends. That person might be one of those widows whom the Government have decided, in other measures, to deprive of their widows pension. We debated and, I regret to say, unsuccessfully opposed that vicious measure only a few months ago. That person might be somebody who has no pension or other source of income, but who has saved from a lifetime of self-employment a small amount of money that now yields £5,000. That person might be someone who had to leave employment because of disablement, and we know how the Government have now cruelly restricted the eligibility criteria for incapacity benefit and are means-testing that benefit.
Those people are at the bottom of the income scale. A few months ago, their income was £5,000. What is their position now, following the Government's measures? It is almost inconceivable. Most people in this country, who are not in that category, have not even begun to face the reality of what has happened to people on the


lowest incomes. The result of the Government's measures is that people who had £5,000 to live on now have only £4,000. Those people, who are extremely vulnerable, have lost £1,000 a year, which is an income reduction of 20 per cent.

Mr. Bercow: My hon. Friend is expounding the case with great force and eloquence. Is he aware that during the proceedings on last year's Finance Bill, the hon. and learned Member for Dudley, North (Mr. Cranston) urged the then Paymaster General to reconsider the Government's position on the tax treatment of dividends as it affected people of pensionable age? The hon. and learned Gentleman, having made that suggestion as a Government Back Bencher to the beleaguered Paymaster General, was subsequently promoted to the post of Solicitor-General. Sadly, despite his promotion, the Government have not shifted their position. Is not it about time that they did so, or that the Solicitor-General relinquished his post?

Mr. Davies: My hon. Friend makes two telling points—one about an hon. and learned Member who certainly ought to be considering his position in the new Labour Administration. I hope that the Financial Secretary to the Treasury, who is about to respond to me, is also considering not just her position, but whether she feels proud to serve in a Government who press on the poorest people in our society in such a malicious and devastating fashion. That is exactly what has occurred.
As my hon. Friend the Member for Buckingham (Mr. Bercow) rightly said, the former Paymaster General, the hon. Member for Coventry, North-West (Mr. Robinson), felt sufficiently ashamed by what his Government had done to express his embarrassment in Committee and to hold out the prospect that something would be done. Nothing, of course, has been done.
This is part and parcel of a campaign waged by this new Labour Government against the new poor—people who are at the bottom of the income scale, but who have a small amount of savings and therefore do not qualify for the Government's means-tested benefits. They are being clobbered over and again by these vicious tax measures.
One thing is quite extraordinary: the Government have protected certain categories of people from the impact of the abolition of the dividend tax credit. They have protected the higher taxpayers—people who would have been paying a marginal 40 per cent. tax on their dividend income and who continue to pay a marginal 40 per cent. on other sources of income. They have a new dividend tax rate of 32.5 per cent. The Government have protected overseas holders of British equities, so that Americans who receive a dividend stream from this country will still receive a cheque—a tax credit—from the Treasury.
The Government cannot find a single crumb for people in this country who have saved hard or who are—perhaps—widows whose husbands saved on their behalf and who have some small savings income from dividends on which to live. The Government should be utterly ashamed of themselves. It amazes me that they can sleep happily in their beds knowing how cruelly they have

ruined the standards of living of people who are right at the bottom of the income scale. That is the achievement of new Labour.

Mr. Christopher Leslie: Do the hon. Gentleman's comments about people on the lowest income mean that he will now support the working families tax credit?

Mr. Davies: The hon. Gentleman has been well schooled by new Labour. The technique that he has learned is this: if one is asked an awkward question, if one is confronted with unpleasant reality, and if it is suggested that one's Government have betrayed the very principles on which the Labour party has thrived for most of this century, one changes the subject. The hon. Gentleman has tried unconvincingly to do so.
I shall next consider people who are slightly up the income scale. What is the position of savers who have an income from saving, from bank deposits, building societies, bonds and gilts, or wherever, which takes them just above the income tax threshold? They do not benefit from the new lower tax rate of 10 per cent. They therefore find themselves at a disadvantage. For reasons incomprehensible, and certainly indefensible either in terms of justice or economic rationality, such savers are taxed at 20 per cent.—not at 10 per cent., as for the first £1,500 earned income band of taxable income.
What has actually occurred? I shall briefly go through the range of rates, because the public have not yet focused on what has happened. Until last year, under the regime inherited from previous Conservative Administrations, there were only three income tax rates in this country. They were applied simply according to the taxpayer's income. They were progressive: the basic rate of tax was 23 per cent.; the lower rate was 20 per cent.; and the higher rate was 40 per cent. People paid at the relevant marginal rate according to their income. The system was fair, rational and comprehensible, and was widely accepted.
10.30 pm
What have the Government done during their two years in power? They have replaced those three rates—that simple and rational system—by eight different categories of liability for income tax and by five, soon to be six, different rates. They did so according to no principle at all, so that what has emerged is a dog's breakfast. There is a 10 per cent. lower rate of income tax on the first £1,500 of earnings from employment or self-employment. That does not apply to savings income from bank or building society deposits, bonds, gilts and so on. There is a 10 per cent. basic rate on dividends—not a lower rate—which takes that tax rate on dividend income up to more than £32,000. That is an extremely low rate. Anyone who receives dividend income up to more than £32,000—taking into account the personal allowance, which, I think, is now £4,335—does not have to make any further payments to the Revenue; that person does not have to account for any further tax.
Then, there is a 20 per cent. basic rate on other savings income, so that, although dividends are taxed at 10 per cent, bank deposits are taxed at 20 per cent. Where is the rhyme or reason in that? What about income from earnings from employment or self-employment?


The basic rate is 23 per cent.—not 20 per cent. as for savings—for income within the range of the basic rate; that is up to £32,000 for people aged below 65, and slightly more than that for those aged over 65.
I have already referred to the new 32.5 per cent. higher rate on dividends; there is a 40 per cent. higher rate on other savings income, and on income deriving from employment or self-employment. Soon, there will be an eighth category and a sixth rate: a 44 per cent. marginal rate for those with children, when the child tax credit comes in.
The system is a complete shambles, based on no conceivable principle. Is it to be defended as being fair to the poor and slightly more unpleasant for the wealthier? No, not at all. As I have shown in my example, the people who suffer most—with a 20 per cent. reduction in their income overnight—are the poorest in the country, who have a savings income from dividends. On the other hand, higher rate taxpayers are protected; if they have dividend income, they are subject to a special 32.5 per cent. rate. One could not possibly say that the new system is a workers tax, as has been argued by new Labour, and that people receive better tax treatment if their income is from employment or self-employment rather than from savings. The reverse is true. People with higher earnings from employment and self-employment will pay tax at a margin of 40 per cent., whereas, if their income derives from dividends, the rate is 32.5 per cent. There is no rhyme or reason in that.
I take two examples from different ends of the range. First, let us take a person whose total income is £6,000. If that income derives from United Kingdom dividends, they get £6,000; that is fine. If that income derives from bank interest, they will pay 20 per cent. tax above the threshold, and their income will be £5,711. If they have earned income, they will pay 10 per cent. for the first band of £1,500 above the personal allowance, and they will get £5,855. If their income were from foreign dividends, they would get the same amount, because a rate of 10 per cent. would apply. If they have—

Mr. Geraint Davies: Will the hon. Gentleman give way?

Mr. Davies: Not at this stage.
Therefore, we have a series of five different possibilities—income from UK dividends; income from bank interest; income from earnings; income from foreign dividends; or income from PEPs and ISAs, in which case there will be a tax credit of 10 per cent., so the person will end up with £6,600. The income tax rate depends, not on how much one earns, but on the source of income.
Secondly, let us take someone with a total income of £30,000. If their income derives from dividends, they are credited with having paid tax at 10 per cent. and have nothing more to pay. If it derives from bank interest, it is taxed at 20 per cent. beyond the personal allowance, and they will get £25,665. From self-employment or employment, they will get £24,293; from foreign dividends, £27,433. From PEPs or ISAs, they will get £33,000 because they will get a tax credit. There is no rhyme or reason in that.
This is a system that simply cannot remain viable. This is a system that has lost all touch with justice or good sense. This is a system that the Government have

managed to introduce in merely two years. They have produced a shambles—an extremely damaging shambles—and they are in danger of undermining the fundamental support for taxation in this country, which has always been a feature of British life. If one produces something that is neither fair nor rational, one will not enjoy public respect; and that is the most devastating disservice to the cause of good taxation that any Government could possibly deliver.

Mr. Geraint Davies: It is a great pleasure to have the hon. Member for Grantham and Stamford (Mr. Davies), who bears my name, back on the Conservative Treasury team. He is very amusing when he makes his emotional outbursts, which bear no relation to reality. Strategically—to put this in context—the Government are trying to have a Budget that gets people back to work and supports families, while protecting the least poor with minimum income guarantees. The changes that are embraced in the Budget and will be entailed in what happens in the wider economy, should be seen in that context—enabling families to work, stopping child poverty, making work pay, and so on.
There has been a lot of ranting from the Conservative Benches about the so-called pathetically poor and the cruel nature of the new Labour Government, but we should view that in context. The crocodile tears that Conservative Members have been shedding come from those who made up a Government who introduced such things as the poll tax, which obviously hit the poor the worst, and VAT on fuel, which especially hit the pensioners that they claim to be concerned about. That Government introduced charges for eye tests and cut pensions in real terms. We had the pensions mis-selling crisis.
Also under that Government, about a million pensioners underclaimed their rights, and the Conservatives did nothing to encourage and enable people to claim their rights. There was a complicated system, which many people who did not have a very good education—because of the legacy of the lot opposite—did not understand. Essentially, we ended up with a lot of poor people who did not claim their benefits. These are the sort of things that the Government are doing something about.

Mr. Bercow: The hon. Gentleman is a good colleague of the Solicitor-General and I believe that he sat on the relevant Finance Bill Committee with him. Given the hon. Gentleman's reputation for intellectual curiosity, has he at no stage since the elevation of his hon. and learned Friend the Member for Dudley, North (Mr. Cranston) to the post of Solicitor-General asked him whether he has changed his mind about the Government's policy on the tax treatment of dividends for pensioners? Has he asked the hon. and learned Gentleman whether he is now a supporter of the Government's position or whether, continuing to believe in the position that he held as a Back Bencher, he has used his position within government to argue for a change of policy? Is the hon. Gentleman saying that the thought of consulting his hon. and learned Friend has not crossed his mind?

Mr. Davies: I thank the hon. Gentleman for that long-winded question. He would know, if he had bothered to be a member of the Committee to which he referred,


that my hon. and learned Friend the Solicitor-General asked whether the Government would care to review their position. The then Paymaster General said, "We will have another look at it because we are very fair on the Government Benches." The Government took that look and came to the conclusion that they were pursuing the right policy.
It is necessary to separate social policy from economic policy. Without rehearsing all the arguments, Opposition Members should know that the changes were introduced to encourage more inward investment in companies and to get rid of tax distortions and excess pay-outs of dividends. The fact that there is a by-product for some non-taxpayers is known, but against that we have a strategy for eliminating poverty that is separate. It is horses for courses, and that is a rational approach.
When we consider the number of people who are concerned by the changes—if he had been up to speed I would have expected the hon. Member for Grantham and Stamford to refer to the 300,000 pensioners—we find that 220,000 pensioners are affected by less than £100. About 270,000 are affected by less than £200. After all, we are giving £100 to older people for their winter fuel benefit. We are talking about gainers and losers, and in the wider context there is the reduction of value added tax on fuel, the minimum income guarantee and the extra £21 billion that is going into the health service. We must consider the real impact that the Government are having on pensioners. It is no use considering a small change in a microscopic way. We must have a wider vision of what is happening, and within that broader context is the case that the Labour party is the pensioners' friend.

Sir Robert Smith: If someone is £200 worse off and he is given £100 to pay his heating bills, what is he meant to pay the heating bill with when he is £100 worse off net?

Mr. Davies: The first £100 was only the winter fuel benefit. When we add up the other factors the average is £240. The hon. Gentleman should look up some of the facts rather than coming out with glib remarks that make no sense.
The changes that we made to advance corporation tax were to repay tax. Pensioners who invested in equities were receiving cash back on tax that they did not pay. A differential approach was taken to those pensioners who perhaps invested in other sources of savings. Clearly there was a distortion, which has been removed. If we want to give more money to poorer pensioners, it can be done through other strategies such as the minimum income guarantee and winter fuel benefit. Indeed, that is precisely what we are doing. We have introduced a range of measures including health service changes—

Mr. Desmond Swayne: Will the hon. Gentleman give way?

Mr. Davies: No, I will not take any more interventions.
We have got rid of eye-test charges for pensioners and there have been VAT changes. A host of measures in favour of pensions have been introduced by the

Government. It is fallacious and cynical for pompous speeches to be made by Conservative Members about the particular change that we are considering.

Mr. Townend: I support new clause 3. It would ensure that people who earn less than £4,335—which, I should have thought, even Labour Members would accept is not a very high figure—and more importantly, people between the ages of 65 and 74 who earn no more than £5,720, do not pay income tax. I am particularly interested in that group because in my constituency, East Yorkshire, we have a much higher percentage of old age pensioners than in the country at large.
10.45 pm
The new clause tries to set right the perverse situation that occurred as a result of the Government's decision in the July 1997 Budget to abolish dividend tax credits for non-taxpayers. That measure came into effect this year and means that non-taxpayers who have already paid the tax on their dividend income cannot reclaim it, as they used to be able to do. That affects 300,000 pensioners, quite a number of whom are in my constituency.
It is all very well for the hon. Member for Croydon, Central (Mr. Davies) to say that £75 or £100 is not much money, but for pensioners living on just over £100 a week, an extra £2 a week in their pocket is a lot of money. At the last election Labour claimed to be the party of the old age pensioners, and the hon. Member for Croydon, Central said that today. The Government should think carefully about accepting the new clause, as it would be in their interest.
It was fascinating to me that an officer of the Pensioners Alliance came to my last surgery in Bridlington. That person is a lifelong socialist. I confess that, at the last election, I did not get anything like the support from older people that I had got in previous elections. That was for two reasons. First, it was put about that the Conservative party would do away with the old age pension. Secondly, the old age pensioners were led to believe that the Labour party would restore the connection between the average wage and the pension.

Mr. Hilton Dawson: Will the hon. Gentleman give way?

Mr. Townend: Naturally, I was interested in why that lady had come to see me. I could not help asking whether she was happy with her Government. She said, "No, that is why I have come to see you, Mr. Townend. I am very interested in learning what Mr. Hague's new policies are likely to be for pensioners, because we feel let down by the Government." She pointed out that people who had saved modest amounts could no longer reclaim the tax on the dividends.
When pensioners heard the Chancellor's speech, they were led to believe that the connection between earnings and pensions had been restored. Then they found that anyone who had an occupational pension got nothing at all. They learned that there was a new 10p income tax rate, but it did not apply to pensioners. They were told that they would keep their marriage allowance, but that was not for new pensioners—only for existing pensioners. The lady at my surgery said, "We are very disillusioned, and I will tell you one thing, Mr. Townend. We will not be voting in the European elections."
The Labour party should take note of that. The old people are feeling let down. If Labour Members say that an old age pensioner on £5,720 a year should be paying tax, they have got it wrong.

Mr. Edward Davey: What the hon. Member for East Yorkshire (Mr. Townend) did not tell us is what he told his constituent about Mr. Hague's pension policy. I learned from my hon. Friend the Member for Northavon (Mr. Webb) that when the hon. Member for Grantham and Stamford (Mr. Davies) was in charge of pension policy for the Conservative party, his pension policy was not to have a pension policy. I hope that a Conservative Member will intervene to tell us what William Hague's pension policy is.

Mr. Deputy Speaker (Sir Alan Haselhurst): Order. The hon. Gentleman should realise that when he refers to another right hon. or hon. Member, he should do so by his constituency.

Mr. Davey: I am grateful to you for putting me right, Mr. Deputy Speaker.
I agree with the substance of what the hon. Member for Grantham and Stamford said. He made the point that the Government's abolition of the dividends tax credit has hit a lot of elderly people—300,000 of them. Despite a long review, the Government have failed to see the error of their ways. It is no good the hon. Member for Croydon, Central (Mr. Davies) saying that we should divide social policy from economic policy. Of course we should not; they are totally intertwined. The Government recognise that linkage in other policies. I have always thought that the welfare-to-work programme is about ensuring that social justice helps economic efficiency, so he cannot have it both ways.
The Liberal Democrats have tabled new clause 18 to put that idea before the House and the Government. We believe that giving tax exemption certificates to pensioners who are below the income tax threshold would simplify tax administration, bringing to the Inland Revenue and also to pensioners a lot of savings—not only financial, but in terms of anxiety and worry. Hundreds of thousands of pensioners who are below the income tax threshold receive large self-assessment tax returns every year, filling them with anxiety about whether they are due to pay tax, how to fill in the form and who they need to see make sure that they do so correctly. They want to pay any tax that they owe, but are not sure how to go about that.
New clause 18 is based on a simple idea developed by the low incomes tax reform group of the Chartered Institute of Taxation. We have borrowed it and we hope that the Government will borrow it from us in turn. It would ensure that all those unnecessary self-assessment tax returns do not have to be sent out. The Government could take that further and ensure that taxpayers who are sent self-assessment tax returns, even though they owe only a small amount, could benefit from simplification of the tax system.
The Chartered Institute of Taxation has produced many examples of ordinary taxpayers—pensioners—who are extremely concerned when they receive such forms.

A pensioner from Tilbury was quoted in one of the institute's recent reports, which was published in June. The pensioner wrote:
I am one of those pensioners on low income who is being hectored by the Inland Revenue. I've tried explaining about my income not being enough to tax. This is the third year running
that the pensioner has had to do that
even though my circumstances stay the same.
A pensioner from Stroud wrote:
My husband is disabled and a non-taxpayer. We now realise that because we have a joint Pensioners Bond we are sent a self-assessment form automatically every year.
We could easily do without this form filling as we are on low income having paid taxes all our lives.
I shall give a final quote, although I could have given hundreds. A pensioner from Ilfracombe wrote:
My experience from the Tax point of view is basic. I have not paid any for over 20 years, but still receive annual tax forms. Now I must fill in the new Tax Assessment Forms (for the 2nd year running).
That is bureaucracy gone mad; it is causing huge anxiety among the pensioner population and it flies in the face of the Government's declared policy. When the Chancellor announced the comprehensive spending review to the House, he said:
We shall also set a tax guarantee that no pensioner will pay income tax unless their income rises above a specified level."—[Official Report, 14 July 1998; Vol. 316, c. 193.]
That is a policy that hon. Members on both sides of the House can subscribe to—it is very sensible—but it is yet to be enacted. New clause 18 would give the Government the chance to do so. It is a practical way forward.
The proposal for tax exemption certificates is simple. The Inland Revenue could work out from the records which pensioners had not paid tax for the previous two years and write to them, making the offer that they would gain a certificate if they filled in a simple application form. Alternatively, the individual non-taxpaying pensioner could apply to the Inland Revenue for an application form for a tax exemption certificate, for which I suggest the following simple wording: "I do not expect my income to exceed the tax exemption certificate threshold of £6,000 for the current year. I do not anticipate that my income in the next three years will exceed the tax exemption certificate threshold. If my income should exceed the tax exemption certificate threshold in the next three years, I will notify the Inland Revenue by 5 October following the end of the tax year."
Everyone would be able to understand such a simple declaration, and it would save us the cost of sending millions of tax returns to non-taxpayers, as well as saving them anxiety. Certificates could be re-registered every four years, and random checks used to ensure that the system was not abused, as happens in other parts of the tax system. Our proposal is in line with the Conservative new clause, but offers a practical idea to simplify administration of the tax system.
Our amendment is not just about non-taxpayers or self-assessment tax returns, but about the relationship of the Inland Revenue and the public sector with pensioners and others who may have difficulty filling out forms, such as those with learning disabilities. The IR ought to be far more user friendly. The Government could use new clause 18 to make a start on that.

Mr. Luff: The Financial Secretary to the Treasury is honourable and decent. If she listens to the purpose of new clauses 3 and amendment No. 2—and of the new clause proposed by the Liberal Democrats—she will realise that her task of asking the House to reject them is unpleasant and unsavoury. The purpose of new clause 3 is simply to ensure that those who earn less than the income tax threshold do not have to pay income tax. Who can argue with that? The Financial Secretary may say that the clause is technically flawed, or that it needs to be rethought. However, the principle that underlies it must be one with which the whole House agrees.
Amendment No. 2 would ensure that savings income is liable to taxation at the new 10p lower rate, not the 20p rate. Both measures would have a disproportionate advantage for those on low incomes, particularly for pensioners. I hope that the Minister will think carefully about what she is to say later.
In the post today, I received a document that I did not recognise. As far as I can tell, it must be a Government briefing document for Labour Members, as it is headed "DSS Key Messages on Welfare Reform June 1999".

Mr. Leslie: Read it; it is very good.

Mr. Luff: Reading it is exactly what I intend to do. It states:
The Government's central aim is to make the welfare state fit for the next century.
Some new Labour waffle follows, then the document says that the Government aim to
promote work for those who can and security for those who cannot.
On pensioners, it adds:
Most help for those with most need. Giving more help to the severely disabled, to poor pensioners and to children.
How will the measures on which the Government are insisting tonight help poor pensioners?
The document goes on—particularly amusingly—to say:
Providing for the future with new stakeholder pensions and encouragement that those who can save should do so.
What encouragement do the measures on which the Government are insisting give to those who want to save?
Later, the document lists all the marvellous things that the Government claim to have done to help pensioners—the minimum income guarantee; the winter fuel allowance referred to by the hon. Member for Croydon, Central (Mr. Davies); free eyesight tests; and the reduction in VAT on fuel. There is no mention of much more—the abolition of mortgage interest relief at source and the implications for home income plans; the abolition of married couples allowance for new pensioner families; and the higher rates of fuel duty that are crippling poor pensioners in many rural areas. The Financial Secretary will have to defend the position of making poorer pensioners pay income tax or pay it at higher rates than is acceptable.
I invite the Financial Secretary to think carefully about the consequences of rejecting amendment No. 2 on the taxation of savings. The estimates of independent analysts suggest that accepting this amendment would cost just £85 million, and £55 million of that advantage would go to people of pensionable age. I cannot believe that the

new Labour Government, who publish such documents to send to their Back Benchers, intend to reject these measures. I am sure that the Financial Secretary, whatever she says, will, in her heart, know that the Opposition are right.

11 pm

Mr. St. Aubyn: The Government's mantra that we hear so often—that they govern for the many, not the few—will have a hollow ring tonight. The 300,000 people we are discussing are the few. They are vulnerable, and many are old. They are also the few because they believe in being self-reliant. It was significant that the hon. Member for Croydon, Central (Mr. Davies) emphasised the benefits that this group of people may be entitled to as a result of the Government's measures. Some of them may welcome those benefits, but others take pride in the fact that they have managed to provide for themselves up till now, and that is how they intend to carry on. As a result of the Government's proposal, those people will lose a significant amount of income.
In the debates on this issue this year and last year, Labour Members argued that this group of people could change their investment strategy, and that, if they switched to bonds, they would not suffer income tax. The difficulty with that approach is that inflation, even at the present low rates, eats away at such savings. In the long term, the only way to protect the value of an income through a savings plan is by investing in shares. We learned today that the average income in this country has now reached £20,000 a year. I read that, 25 years ago, it was only £2,500. People who, at the start of their retirement, took the Government's advice and put all their retirement savings into bonds may have had their standard of living severely curtailed compared with what they might have achieved if they had kept their savings in shares.
What is the point of a Government tax strategy that encourages the old, the vulnerable and the weak to put their small amount in the least sensible form of savings? Surely that goes against the whole thrust of modern thinking. We should encourage people to care and provide for themselves. We should foster the self-help culture. The Government are penalising the people who have provided for themselves through thick and thin, and who have wisely invested in shares to protect some of the value of their savings.
The other argument that was advanced in Committee this year and last year was that those people could put their money into ISAs. If they were to do that, they would get a double whammy. Not only would there be an element of taxation on their share income in ISAs but, because the amounts involved are very small, the management charges for running those funds would eat into the net income or into the capital. One way or another, they would suffer greatly compared with the situation they were in before the Government came to power.
Perhaps the Minister could tell us in passing what proportion of ISAs has been invested in stocks and shares and what proportion has been invested in cash ISAs. We could judge from that how successful the Government's new initiative has been.
We have already heard the ghost of the hon. and learned Member for Dudley, North (Mr. Cranston) hovering over the debate. I remember the surge of


optimism among Conservative Members during the Committee stage of last year's Bill when he addressed the Committee with enthusiasm, urging the then Paymaster General to make concessions. We thought that the Government were at last listening to the needs of the few as well as the mantras of the many. Unfortunately, however, that particular Paymaster General has disappeared from the scene. He has not been in the Chamber for quite a while. I fear that he has been sent to Coventry, if not to Coventry, North-West.

Mr. Bercow: My hon. Friend presents an irresistible temptation. Does he agree that, at the end of the speech of the hon. Member for Croydon, Central (Mr. Davies), it was no clearer than it had been at the beginning whether he thought that the Solicitor-General had since experienced an apostolic conversion and come round to supporting the Government's view, or whether—secretly, and smothered in guilt—he still believed what he had said a year ago from the Back Benches?

Mr. St. Aubyn: Unlike my hon. Friend and me, the Solicitor-General is a lawyer, and none of us really knows what he believes. I wish that he were here to tell us. In his absence, however, I think that the Financial Secretary owes us an explanation. Why have the Government stalled at the last fence? Why have they failed to treat this section of our community fairly? I feel that they should pause, and consider the negative signal that the measure will send to other savers.

Dr. Vincent Cable: I want to say a little about amendment No. 2, which Liberal Democrats tabled along with Conservatives. It relates specifically to discrimination between different kinds of income earned and unearned, and the 20p rate. Let me summarise what I consider to be the central reasons why that is an adverse development.
The first reason has, in part, already been summarised by the hon. Member for Grantham and Stamford (Mr. Davies). It introduces a great deal of complexity into the system. We are talking not merely about the distinction between earned and unearned income, but about the distinction between different types of savings income. Different rates now apply to dividend and fixed-interest income; different rates apply to fixed-interest deposits, as opposed to annuities, which stem from another kind of interest income. There is no economic, equity-based or administrative reason for that; it just happened to emerge from a very complex, badly-thought-out piece of legislation. That is why we are pressing our amendment, which relates specifically to the certification process that will make things much easier for low-income pensioners.
Another point has not been mentioned, although it is important. The Government have unintentionally reintroduced the old tax principle that unearned income is in some sense less worth while than earned income. It used to be a principle of taxation that those with rentier income were somehow less worthy than those who were working. That principle had been scrapped, but now it is returning in disguise. Although it may have been reintroduced unintentionally, it is very unhealthy, and not compatible with the ideas that I thought that new Labour stood for.

Mr. Quentin Davies: The hon. Gentleman is making a strong point. A case might be made for penalizing

so-called unearned income, as opposed to earned income, and a case might be made for doing the opposite. At present, however, the Government are penalising unearned income at the bottom of the tax scale, and propose later, at the basic rate, to tax unearned income at a lower rate—dividends at only 10 per cent., and other savings income at only 20 per cent.—while taxing earned income at 23 per cent. That, surely, is complete madness.

Dr. Cable: The hon. Gentleman is right. The central issue of the debate is how the proposals affect people at the bottom end. I sense that the Government still have not appreciated the extent to which people who are otherwise very poor still depend on unearned income. The situation is quite common. We all have constituents in this position—for example, people who have not made the contributions that would entitle them to a state pension, and who therefore save. Because they have substantial savings, they will not qualify for income support, and their future retirement therefore depends almost entirely on savings income. Young pensioners in particular, and those whose allowances are particularly small—those who have retired prematurely, or have been made redundant—are being hit at very low levels of income by higher rates of tax. Therefore, the system does not merely discriminate against unearned income. As the hon. Member for Grantham and Stamford says, it particularly hurts poor savers.
In that context, I say a word about dividend tax credits and the dividend problem. It has been referred to, but it is helpful to go over a little of the chronology. The hon. and learned Member for Dudley, North (Mr. Cranston) has been singled out. I was present in the Committee when he spoke. He has been perhaps unfairly singled out because he was speaking up for the colleagues who were around him. He was representing a genuine disquiet among Labour Members about what was happening. Indeed, that continued for many months afterwards. There was a widely circulated early-day motion, which was, I think, roughly equally supported in the three parties.
I subsequently went to see the former Paymaster General with the hon. and learned Member for Dudley, North and the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb). He was very accommodating and accepted fully that an unfair and unfortunate major anomaly had been created. He undertook to mobilise the Treasury's resources to try to do something about it. What was discreditable was not the fact that he was not able to something about it—there may have been genuine administrative difficulties in sorting out the problem—but that it took the Treasury six months to make up its mind to tell us. Its reply came through in a written answer to me; it was sneaked through six months later. Not merely the policy but the way in which the Treasury handled the matter subsequently was discreditable.
In addition to all the other disadvantages of applying extra rates of tax to savings incomes, the provision is a further measure disadvantaging and discouraging personal savings. As the right hon. and learned Member for Rushcliffe (Mr. Clarke) has been sitting patiently during the debate, it is worth mentioning that he introduced a particularly popular and valuable form of personal savings called pensioner bonds. I was intrigued, as one of my constituents asked, how the returns on pensioner bonds had developed since he introduced them. It was clear not merely that the nominal return on the bonds had gradually


declined over the past few years—I would expect that because inflation is lower—but that the real return on the bonds had been allowed to fall by about 2 per cent.
Therefore, a popular form of savings is being devalued and we have increased taxation of savings. In the short run, that may not matter—the United States has much economic growth and deteriorating personal savings—but it cannot go on. A society cannot grow rapidly and in a sustainable way without healthy personal savings. In addition to all the unfairness that the tax change introduces, it undermines the fundamentals of our economy.

Mr. Swayne: I support new clause 3. I would have kept my peace but for being provoked to speak by the hon. Member for Croydon, Central (Mr. Davies). Otherwise, I would have relied on the eloquence of Conservative Members who have put the case solidly.
The hon. Member for Croydon, Central refused to take my intervention, which was uncharacteristic because he is normally generous in taking interventions. However, I could see his difficulty, with the Government Whip shaking his head and telling him to refuse. The penalty is that he must now endure listening to me.
The hon. Gentleman expounded a most peculiar argument. He seemed to suggest that it was all right to plunder the savings of the elderly, so long as Government policy was viewed in the round. Specifically, he cited the fact that those people would benefit from the minimum pension guarantee. It might have escaped his notice that the guarantee is not yet payable, yet elderly pensioners in my constituency have already lost the right to reclaim tax on dividends. As a consequence, while living on low incomes, they are paying tax where they were not paying tax before. That is what the new clause is designed to remedy.
Labour Members might believe that people who have savings in the form of shares have developed a form of financial sophistication that makes it open season for such a tax increase. However, the lie to such sophistication is given by the number of constituents who are still writing to me to say that they have only just realised what effect the Government's proposals will have on them. That does not speak of great financial sophistication.
11.15 pm
Labour Members might also think that, generally, people who have invested in shares are at the wealthier end of the income ladder. However, the most distressing letters that I have received on the issue are from those who admit that being able to reclaim tax paid on dividends makes a difference, not between wealth and poverty for themselves but between being able to afford small luxuries—such as Christmas presents for their grandchildren, or visits to their relatives—[Interruption.]

Mr. Gray: The hon. Member for Shipley (Mr. Leslie) laughed.

Mr. Swayne: Labour Members may well laugh, but they might also recall that those are the very people for whom the Labour party—before it became new Labour,

in pursuit of middle income and of those who are able, because of their income, to make donations to the Labour party—used to care.

Mr. Bercow: The whole House will have noticed that the hon. Member for Shipley (Mr. Leslie) does not believe that pensioners should be able to buy Christmas presents for anyone—that is the scale of the scandal of his position.
Nevertheless, does my hon. Friend agree that, when the hon. Member for Twickenham (Dr. Cable) said that the Government's handling of the matter was dishonourable, the one thing that he omitted to mention was that, today, the single most dishonourable aspect of the Government's handling of the matter is that the only currently serving Treasury Minister who served in the Finance Bill Committee when the matter was discussed is not in the Chamber to reply to the debate? I refer, of course, to the Paymaster General. Where is she?

Mr. Swayne: I entirely agree with my hon. Friend; he makes an important point. I am certain, however, that the dignity of age will change the views, and indeed the attitude, of the hon. Member for Shipley.
Quite unacceptably, the hon. Member for Croydon, Central contended that it is perfectly acceptable to plunder the savings, and therefore the self-reliance, of elderly people, and to replace them with means-tested benefit. What signal does that send to generations yet to retire? What message does it send in respect of self-reliance?
The hon. Gentleman went on to speak of the need to eradicate child poverty. Does he not realise that the tax that we are debating would be paid by children? Although I grant him that the tax is unlikely to be paid by children living in poverty—the nature of the arrangements that we are discussing are such that they are unlikely to be made for children by parents who are below the poverty line—I ask him to consider the fact that many parents have arranged for shares to generate income for their children precisely because those children will not be able to provide for themselves, as they are handicapped and their parents are worried about their future. They, too, will pay the tax, and their income will be affected by it.
I hope that the hon. Gentleman will reconsider his earlier remarks and reflect both on their wisdom and the message on self-reliance that they have sent to the British people.

Mrs. Roche: The hon. Member for New Forest, West (Mr. Swayne) said that he was not going to speak but was provoked into doing so. I am in the same position: I was tempted not to speak until I heard his speech. I have never heard such arrant nonsense, although he is not alone in this debate. One would have thought that the Conservatives had not presided over record levels of child poverty when they were in government and that they had not introduced VAT on fuel—perhaps the most regressive measure to hit our pensioners; yet they have the temerity to pose as the party of the pensioner. That is nonsense.
We have debated the issue time and again. That makes it all the more surprising that the new clause reveals a basic misunderstanding about the tax credit system and is fundamentally flawed. If the Conservatives really cared about the new clause, they would do their homework and get it right. Once again they have not done their homework, and not only can they not get the politics right but they cannot get the detail right either.
The withdrawal of payable tax credits does not mean that non-taxpayers below the personal allowance threshold will suffer tax on their income. The tax credit has never represented tax deducted on behalf of the individual, and the payment of tax credits on dividends was never a repayment of tax deducted on their behalf. On the contrary, it represented a payment to non-taxpayers of tax that they had not borne in the first place—tax paid by the company. Effectively it was an income top-up. The withdrawal of the credit leaves the non-taxpaying shareholders in the position of having paid no tax on the dividends.

Mr. Quentin Davies: Will the hon. Lady acknowledge the reality, which is that someone who had £5,000 entirely from dividends to live on will now have £4,000? That is a catastrophic fall in income for someone who is not well off—very likely a pensioner.

Mrs. Roche: The hon. Gentleman should listen to what I am going to say about the total package. If he does, he will find out.
Conservative Members have used the new clause as another opportunity to rehearse the well-worn arguments on the issue. Why did we make the change? We wanted to remove a distortion in the corporation tax system that encouraged companies to distribute their profits as dividends rather than reinvesting them in their business. Reinvestment is essential for growth in the economy, which we want to encourage. We know what the Conservatives did to our economy and we are determined not to see it repeated. [Interruption.] Conservative Members may shout. They do not like hearing the facts, but they are going to hear them this evening.
Payable tax credits were abolished immediately for most companies and pension funds, but we recognised that there would be a period of change. By investing in the new individual savings accounts, individuals will be able to benefit for a five-year period from 1999 from the payment of a 10 per cent. tax credit on dividends from UK equities. I urge the House to reject the new clause.
I understand the concerns raised by the hon. Member for Kingston and Surbiton (Mr. Davey) about the impact of the tax system on older taxpayers, but I am not convinced that his solution is the best way to deal with the problems. The aim of the proposed certificate for older taxpayers is that those on low incomes should be given assurances that they are outside the tax system, in particular to enable them to receive income without the deduction of tax at source. The present system achieves what the certificate is designed to do. Around two thirds of older taxpayers are outside the tax system. We are proud of that record. The package of Budget measures has taken a further 200,000 older people out of the system. Many of them have no reason to contact the Inland Revenue at all unless their circumstances change and their income rises.

Mr. St. Aubyn: Is the Financial Secretary proposing that people with share savings should put them through an ISA? How much has been put into share ISAs compared to the amount put into cash ISAs since the scheme was launched?

Mrs. Roche: I would certainly not want to give advice. [Interruption.] The hon. Gentleman must learn to have

some patience. I gave way to him, and I will be pleased to reply if he will wait. It is no surprise that, in the first period, the most money has gone into cash ISAs, considering that they were very much designed to appeal to those with little or no savings. I am delighted to tell the House that ISAs are a tremendous success and are proving very popular. I congratulate my hon. Friend the Economic Secretary to the Treasury on all the work that she has done.

Mr. Davies: Will the Financial Secretary give way?

Mrs. Roche: No—the hon. Gentleman had his chance. If he will forgive me, I have heard him at volume tonight. I gave him one chance.
Obviously, the hon. Member for Guildford (Mr. St. Aubyn) is no longer interested in ISAs, as he is busy talking. However, for many poorer people, ISAs have been a great boon and we are proud of them.
The £1 billion Budget package for older people included a new minimum tax guarantee for pensioners; and the age-related personal allowances were increased by up to £200, more than required by statutory indexation. [Interruption.] I am not surprised that Conservative Members do not recognise the importance of that minimum guarantee. It is certainly important for the majority of pensioners whom the Government represent.
The proposal would have the effect of increasing the personal allowance for many lower income pensioners to £6,000 a year. As I have explained, the Budget package already includes generous increases in the age-related personal allowances. [Interruption.] I do wish that Conservative Members would cease chattering. The hon. Member for Kingston and Surbiton is entitled to a reasonable reply and that is what he will get.
The idea of the certificate was put forward by the low incomes tax reform group. I can tell the hon. Member for Kingston and Surbiton that the Inland Revenue is holding discussions with the group about its ideas, and we are always willing to consider how the scheme might be improved.
Savings income, such as bank and building society interest, is already taxed favourably. It is taxed at the lower rate of 20 per cent., rather than at the basic rate of 23 per cent., until it is of a sufficient size for the higher rate of tax to apply. As part of the reform of corporation tax, dividends are taxed at 10 per cent. up to the basic rate limit.

Mr. Davies: Why?

Mrs. Roche: I will tell the hon. Gentleman why—because one of the basic tenets of the Chancellor's Budget was to encourage work and enterprise and to help families. That is what we have done.

Mr. Davies: Will the Financial Secretary give way?

Mrs. Roche: No, the hon. Gentleman has had his chance. I noticed that he took no interventions. I have taken one from him and responded to a sedentary comment.
The Conservatives' amendment, which was not costed, would cost the Exchequer an extra £1 billion a year. Once again, we see that the Conservative party is prepared to


talk about public services without saying how it will spend public money. The Conservative party poses as the pensioners' friend, but it is no such thing. It is the party that in the past has undermined pensioners. I urge the House to reject the new clause.

Question put, That the clause be read a Second time:—

The House divided: Ayes 149, Noes 316.

Division No. 223]
[11.30 pm


AYES


Allan, Richard
Howard, Rt Hon Michael


Amess, David
Hughes, Simon (Southwark N)


Ancram, Rt Hon Michael
Jack, Rt Hon Michael


Arbuthnot, Rt Hon James
Jackson, Robert (Wantage)


Atkinson, Peter (Hexham)
Jenkin, Bernard


Bercow, John
Keetch, Paul


Beresford, Sir Paul
Key, Robert


Blunt, Crispin
King, Rt Hon Tom (Bridgwater)


Boswell, Tim
Kirkbride, Miss Julie


Bottomley, Peter (Worthing W)
Kirkwood, Archy


Bottomley, Rt Hon Mrs Virginia
Laing, Mrs Eleanor


Brazier, Julian
Lansley, Andrew


Breed, Colin
Leigh, Edward


Brooke, Rt Hon Peter
Letwin, Oliver


Browning, Mrs Angela
Lewis, Dr Julian (New Forest E)


Bruce, Ian (S Dorset)
Lidington, David


Burns, Simon
Lilley, Rt Hon Peter


Cable, Dr Vincent
Livsey, Richard


Chapman, Sir Sydney (Chipping Barnet)
Lloyd, Rt Hon Sir Peter (Fareham)


Chope, Christopher
Llwyd, Elfyn


Clappison, James
Loughton, Tim


Clarke, Rt Hon Kenneth (Rushcliffe)
Luff, Peter


Clifton—Brown, Geoffrey
MacGregor, Rt Hon John


Collins, Tim
MacKay, Rt Hon Andrew


Colvin, Michael
Maclean, Rt Hon David


Cotter, Brian
McLoughlin, Patrick


Cran, James
Madel, Sir David


Davey, Edward (Kingston)
Malins, Humfrey


Davies, Quentin (Grantham)
Maples, John


Davis, Rt Hon David (Haltemprice)
Mates, Michael


Day, Stephen
Maude, Rt Hon Francis


Dorrell, Rt Hon Stephen
Mawhinney, Rt Hon Sir Brian


Duncan, Alan
Michie, Mrs Ray (Argyll & Bute)


Duncan Smith, lain
Morgan, Alasdair (Galloway)


Evans, Nigel
Moss, Malcolm


Faber, David
Nicholls, Patrick


Fabricant, Michael
Ottaway, Richard


Fallon, Michael
Page, Richard


Flight, Howard
Paice, James


Fowler, Rt Hon Sir Norman
Pickles, Eric


Fox, Dr Liam
Prior, David


Fraser, Christopher
Randall, John


Gale, Roger
Redwood, Rt Hon John


Garnier, Edward
Robathan, Andrew


George, Andrew (St Ives)
Robertson, Laurence (Tewk'b'ry)


Gibb, Nick
Roe, Mrs Marion (Broxboume)


Gill, Christopher
Ruffley, David


Gillan, Mrs Cheryl
Russell, Bob (Colchester)


Gorman, Mrs Teresa
St Aubyn, Nick


Gray, James
Sanders, Adrian


Green, Damian
Sayeed, Jonathan


Grieve, Dominic
Shephard, Rt Hon Mrs Gillian


Gummer, Rt Hon John
Shepherd, Richard


Hamilton, Rt Hon Sir Archie
Simpson, Keith (Mid—Norfolk)


Hammond, Philip
Smith, Sir Robert (W Ab'd'ns)


Harvey, Nick
Soames, Nicholas


Heathcoat—Amory, Rt Hon David
Spelman, Mrs Caroline


Hogg, Rt Hon Douglas
Spicer, Sir Michael


Horam, John
Spring, Richard



Stanley, Rt Hon Sir John



Steen, Anthony





Streeter, Gary
Waterson, Nigel


Stunell, Andrew
Webb, Steve


Swayne, Desmond
Wells, Bowen


Swinney, John
Whitney, Sir Raymond


Syms, Robert
Whittingdale, John


Tapsell, Sir Peter
Wilkinson, John


Taylor, Ian (Esher & Walton)
Willetts, David


Taylor, John M (Solihull)
Willis, Phil


Taylor, Sir Teddy
Wilshire, David


Townend, John
Winterton, Mrs Ann (Congleton)


Tredinnick, David
Winterton, Nicholas (Macclesfield)


Trend, Michael
Woodward, Shaun


Tyler, Paul
Young, Rt Hon Sir George


Tyrie, Andrew



Viggers, Peter
Tellers for the Ayes:


Wardle, Charles
Mr. Oliver Heald and



Mrs. Jacqui Lait.


NOES


Abbott, Ms Diane
Coffey, Ms Ann


Adams, Mrs Irene (Paisley N)
Coleman, lain


Ainger, Nick
Colman, Tony


Ainsworth, Robert (Cov'try NE)
Connarty, Michael


Alexander, Douglas
Corbett, Robin


Allen, Graham
Corbyn, Jeremy


Anderson, Janet (Rossendale)
Corston, Ms Jean


Armstrong, Rt Hon Ms Hilary
Cousins, Jim


Atherton, Ms Candy
Cranston, Ross


Atkins, Charlotte
Crausby, David


Austin, John
Cryer, Mrs Ann (Keighley)


Banks, Tony
Cryer, John (Hornchurch)


Barron, Kevin
Cummings, John


Battle, John
Cunningham, Jim (Cov'try S)


Bayley, Hugh
Curtis—Thomas, Mrs Claire


Beard, Nigel
Darling, Rt Hon Alistair


Beckett, Rt Hon Mrs Margaret
Darvill, Keith


Bell, Stuart (Middlesbrough)
Davey, Valerie (Bristol W)


Benn, Hilary (Leeds C)
Davies, Rt Hon Denzil (Llanelli)


Benn, Rt Hon Tony (Chesterfield)
Davies, Geraint (Croydon C)


Bennett, Andrew F
Davis, Terry (B'ham Hodge H)


Benton, Joe
Dawson, Hilton


Bermingham, Gerald
Dean, Mrs Janet


Berry, Roger
Denham, John


Best, Harold
Dismore, Andrew


Betts, Clive
Dobbin, Jim


Blears, Ms Hazel
Dobson, Rt Hon Frank


Blizzard, Bob
Doran, Frank


Bradley, Keith (Withington)
Dowd, Jim


Bradley, Peter (The Wrekin)
Drew, David


Bradshaw, Ben
Eagle, Maria (L'pool Garston)


Brown, Russell (Dumfries)
Edwards, Huw


Browne, Desmond
Efford, Clive


Burden, Richard
Ellman, Mrs Louise


Butler, Mrs Christine
Ennis, Jeff


Byers, Rt Hon Stephen
Etherington, Bill


Caborn, Rt Hon Richard
Field, Rt Hon Frank


Campbell, Alan (Tynemouth)
Fisher, Mark


Campbell, Mrs Anne (C'bridge)
Fitzpatrick, Jim


Campbell, Ronnie (Blyth V)
Fitzsimons, Lorna


Campbell—Savours, Dale
Flint, Caroline


Cann, Jamie
Flynn, Paul


Caplin, Ivor
Follett, Barbara


Casale, Roger
Foster, Rt Hon Derek


Caton, Martin
Foster, Michael J (Worcester)


Cawsey, Ian
Galloway, George


Chapman, Ben (Wirral S)
Gapes, Mike


Chaytor, David
Gerrard, Neil


Chisholm, Malcolm
Gibson, Dr Ian


Clapham, Michael
Godman, Dr Norman A


Clark, Rt Hon Dr David (S Shields)
Godsiff, Roger


Clark, Paul (Gillingham)
Goggins, Paul


Clarke, Charles (Norwich S)
Golding, Mrs Llin


Clarke, Rt Hon Tom (Coatbridge)
Griffiths, Jane (Reading E)


Clarke, Tony (Northampton S)
Griffiths, Nigel (Edinburgh S)


Clelland, David
Griffiths, Win (Bridgend)


Clwyd, Ann
Grogan, John






Gunnell, John
Mahon, Mrs Alice


Hain, Peter
Mallaber, Judy


Hall, Mike (Weaver Vale)
Mandelson, Rt Hon Peter


Hall, Patrick (Bedford)
Marsden, Gordon (Blackpool S)


Hamilton, Fabian (Leeds NE)
Marsden, Paul (Shrewsbury)


Hanson, David
Marshall, Jim (Leicester S)


Harman, Rt Hon Ms Harriet
Marshall—Andrews, Robert


Heal, Mrs Sylvia
Martlew, Eric


Healey, John
Maxton, John


Henderson, Doug (Newcastle N)
Meacher, Rt Hon Michael


Henderson, Ivan (Harwich)
Meale, Alan


Hepburn, Stephen
Michie, Bill (Shef'ld Heeley)


Hesford, Stephen
Milburn, Rt Hon Alan


Hewitt, Ms Patricia
Mitchell, Austin


Hinchliffe, David
Moffatt, Laura


Hodge, Ms Margaret
Moonie, Dr Lewis


Home Robertson, John
Moran, Ms Margaret


Hope, Phil
Morgan, Ms Julie (Cardiff N)


Hopkins, Kelvin
Morley, Elliot


Howarth, George (Knowsley N)
Morris, Ms Estelle (B'ham Yardley)


Hoyle, Lindsay
Mullin, Chris


Hughes, Ms Beverley (Stretford)
Murphy, Denis (Wansbeck)


Hughes, Kevin (Doncaster N)
Murphy, Jim (Eastwood)


Humble, Mrs Joan
Naysmith, Dr Doug


Hurst, Alan
O'Brien, Bill (Normanton)


Hutton, John
O'Hara, Eddie


Iddon, Dr Brian
Olner, Bill


Illsley, Eric
O'Neill, Martin


Jackson, Ms Glenda (Hampstead)
Organ, Mrs Diana


Jackson, Helen (Hillsborough)
Osborne, Ms Sandra


Jenkins, Brian
Palmer, Dr Nick


Johnson, Alan (Hull W & Hessle)
Pearson, Ian


Johnson, Miss Melanie (Welwyn Hatfield)
Pendry, Tom


Jones, Barry (Alyn & Deeside)
Perham, Ms Linda


Jones, Mrs Fiona (Newark)
Pickthall, Colin


Jones, Helen (Warrington N)
Pike, Peter L


Jones, Ms Jenny (Wolverh'ton SW)
Plaskitt, James


Jones, Dr Lynne (Selly Oak)
Pollard, Kerry


Jones, Martyn (Clwyd S)
Pond, Chris


Jowell, Rt Hon Ms Tessa
Pope, Greg


Keen, Alan (Feltham & Heston)
Pound, Stephen


Keen, Ann (Brentford & Isleworth)
Powell, Sir Raymond


Kemp, Fraser
Prentice, Ms Bridget (Lewisham E)


Kennedy, Jane (Wavertree)
Prentice, Gordon (Pendle)


Khabra, Piara S
Prescott, Rt Hon John


Kidney, David
Primarolo, Dawn


Kilfoyle, Peter
Prosser, Gwyn


King, Andy (Rugby & Kenilworth)
Purchase, Ken


King, Ms Oona (Bethnal Green)
Quinn, Lawrie


Ladyman, Dr Stephen
Rammell, Bill


Lawrence, Ms Jackie
Rapson, Syd


Laxton, Bob
Reed, Andrew (Loughborough)


Leslie, Christopher
Reid, Rt Hon Dr John (Hamilton N)


Levitt, Tom
Robertson, Rt Hon George (Hamilton S)


Lewis, Ivan (Bury S)
Roche, Mrs Barbara


Lewis, Terry (Worsley)
Rooker, Jeff


Liddell, Rt Hon Mrs Helen
Rooney, Terry


Linton, Martin
Rowlands, Ted


Livingstone, Ken
Roy, Frank


Lock, David
Ruane, Chris


Love, Andrew
Ruddock, Joan


McAllion, John
Russell, Ms Christine (Chester)


McAvoy, Thomas
Ryan, Ms Joan


McCabe, Steve
Salter, Martin


McCafferty, Ms Chris
Sarwar, Mohammad


McDonnell, John
Savidge, Malcolm


McGuire, Mrs Anne
Sawford, Phil


Mclsaac, Shona
Sedgemore, Brian


McNamara, Kevin
Shaw, Jonathan


McNulty, Tony
Sheerman, Barry


MacShane, Denis
Sheldon, Rt Hon Robert


Mactaggart, Fiona
Simpson, Alan (Nottingham S)


McWalter, Tony
Singh, Marsha


McWilliam, John
Skinner, Dennis



Smith, Angela (Basildon)





Smith, Rt Hon Chris (Islington S)
Thomas, Gareth R (Harrow W)


Smith, Miss Geraldine (Morecambe & Lunesdale)
Timms, Stephen


Smith, Jacqui (Redditch)
Tipping, Paddy


Smith, Llew (Blaenau Gwent)
Todd, Mark


Snape, Peter
Trickett, Jon


Soley, Clive
Turner, Dennis (Wolverh'ton SE)


Southworth, Ms Helen
Turner, Dr Desmond (Kemptown)


Spellar, John
Turner, Dr George (NW Norfolk)


Squire, Ms Rachel
Twigg, Derek (Halton)


Starkey, Dr Phyllis
Vaz, Keith


Steinberg, Gerry
Vis, Dr Rudi


Stevenson, George
Wareing, Robert N


Stewart, David (Inverness E)
Watts, David


Stewart, Ian (Eccles)
White, Brian


Stinchcombe, Paul
Whitehead, Dr Alan


Stoate, Dr Howard
Wicks, Malcolm


Stott, Roger
Williams, Alan W (E Carmarthen)


Strang, Rt Hon Dr Gavin
Williams, Mrs Betty (Conwy)


Straw, Rt Hon Jack
Winnick, David


Stringer, Graham
Winterton, Ms Rosie (Doncaster C)


Stuart, Ms Gisela
Wise, Audrey


Sutcliffe, Gerry
Wood, Mike


Taylor, Rt Hon Mrs Ann (Dewsbury)
Worthington, Tony


Taylor, Ms Dari (Stockton S)
Wray, James


Taylor, David (NW Leics)
Wright, Anthony D (Gt Yarmouth)


Temple—Morris, Peter
Wright, Dr Tony (Cannock)


Thomas, Gareth (Clwyd W)




Tellers for the Noes:



Mr. Keith Hill and



Mr. David Jamieson.

Question accordingly negatived.

New Clause 10

CAPITAL ALLOWANCES: ROAD FUEL GAS

'.—After section 36 of the Capital Allowances Act 1990 (definition of "motor car" etc.) insert—

CHAPTER IIIA

ROAD FUEL GAS

36A.—Where a person, while carrying on a trade, incurs expenditure—

(a) on the provision of machinery or plant intended to act as a filling point for the supply of road fuel gas, or
(b) on the installation of such machinery or plant,
and where such expenditure is wholly and exclusively for the purposes of the trade, a deduction equal to the whole of the expenditure shall be allowed in taxing the trade for the chargeable period.

36B.—Where a person, while carrying on a trade, incurs expenditure on the provision of machinery or plant for the conversion of the engine of a motor car so that the motor car is capable of being propelled, wholly or partly, by road fuel gas, and where such expenditure is wholly and exclusively for the purposes of the trade, a deduction equal to the whole of the expenditure shall be allowed in taxing the trade for the chargeable period.".'.—[Mr. Jack.]

Brought up, and read the First time

Mr. Jack: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Mr. Michael Lord): With this, it will be convenient to discuss the following amendments: No. 27, in clause 8, page 3, line 26, after 'centimetres,', insert
'a vehicle falling within subparagraph (1) of paragraph 1A, or a vehicle falling within subparagraph (1) of paragraph 1B,'.


No. 28, in page 3, line 39, at end insert—

'(6) At the end of paragraph 1 of Schedule 1 to the Vehicle Excise and Registration Act 1994 there shall be inserted—

"1A.—(1) Any vehicle which has during the previous 12 months been certified as achieving an emissions figure of 140g CO2/km shall have a general rate of £100.

(2) The Secretary of State shall by regulations establish the methodology by which the emissions figure referred to in sub-paragraph (1) is to be calculated, and any such regulations shall be subject to annulment by either House of Parliament.

(3) Subparagraph (1) shall have effect in relation to any licence taken out for a period beginning on or after 1st January 2000.".'.

No. 29, in page 3, line 39, at end insert—

'(7) At the end of paragraph 1 of Schedule 1 to the Vehicle Excise and Registration Act 1994 there shall be inserted—

"1B.—(1) Any vehicle which has been registered during the previous 12 months and which has been certified as using Liquefied Petroleum Gas as a fuel shall have a general rate of £100.

(2) The Secretary of State shall by regulations establish the methodology by which the process of certification referred to in sub-paragraph (1) is to be carried out, and any such regulations shall be subject to annulment by either House of Parliament.

(3) Subparagraph (1) shall have effect in relation to any licence taken out for a period beginning on or after 1st January 2000.".'.

Mr. Jack: This debate gives us an opportunity to review the logic of the Government's proposals on vehicle excise duty and carefully to examine their credentials on the fiscal encouragement that they may be contemplating—[Interruption.]

Mr. Deputy Speaker: Order. I am sorry to interrupt the right hon. Gentleman, but there is far too much background noise in the House. We are conducting a debate.

Mr. Jack: We have an opportunity also to consider the fiscal encouragement that the Government are giving to the use of fuels for motor vehicles, particularly liquefied petroleum gas, which have several environmental attributes to which I shall refer in a moment.
I thank the Society of Motor Manufacturers and Traders and the Calor Group plc for their assistance in preparing material for the new clause and the amendments. I tabled them because the Government received support for their proposal in the Budget and the subsequent Finance Bill to introduce a new vehicle excise duty regime. They reduced the VED for cars of 1100 cc or less by £50, but increased the VED on all remaining vehicles by a counter-balancing amount so that the measure would effectively be tax-neutral.

Mr. Fabricant: I am sure that my hon. Friend was not fooled, as so many were, into thinking that the Government were being generous in their dispensation. Is he aware that even as small a car as the Fiat Punto does not qualify for the 1100 cc lower vehicle excise duty dispensation?

Mr. Jack: I suppose that I should declare an interest: I have one of those cars, so I am entirely aware of my hon. Friend's point, with which I shall deal.
The 1100 cc cut-off was chosen quite arbitrarily. Magically, one supposedly reaches a tax-neutral position by taking £50 from the VED of the 2.9 million vehicles affected, and adding £50 to the VED for other cars. It is intriguing, therefore, that in year one of the change announced in the Red Book, the Government gained £14 million.
I tabled amendments on the VED, because in the press release issued at the time of the Budget, the Government said:
New cars registered from Autumn 2000 will be subject to a VED system based principally upon their rate of carbon dioxide emission, to encourage the take-up of more fuel-efficient vehicles.
I found it odd that they were jumping the gun on the outcome of their consultation document "Consultation on reform of Vehicle Excise Duty to ensure a cleaner environment", which was issued in November, although I do not disagree with such an objective.
In paragraph 2.3 of that document, the Government say:
The UK also has a domestic aim of cutting emissions of carbon dioxide, the main greenhouse gas, by 20 per cent. by 2010 relative to 1990.
So, a clear environmental objective was stated right at the start of the consultation exercise.
In paragraph 2.4, the Government go on to point out that
Recently, a voluntary agreement has, however, been concluded between the European Commission and car manufacturers to reduce average emissions from new cars to 140 grammes of CO2 per kilometre by the 2008, a cut of about 25 per cent. on the current average".
From the two statements, one would have thought that, at that juncture, the Government would have wanted to do all that they possibly could to encourage the take-up of fuels that will reduce carbon dioxide, and thereby encourage those who are to meet the remarkable voluntary agreement by 2008. As I shall demonstrate, my amendments give the Government an opportunity to encourage such developments over the next 12 months. They are entirely consistent with the Government's objectives in their consultation exercise.
Amendment No. 29, which applies the introduction of the proposals to liquified petroleum gas, prays in aid the comment at the end of paragraph 2.5 of the consultation document. It draws our attention to the problems of fine particulates PM 10s, which have a demonstrated link with respiratory and cardiovascular disease, and to oxides of nitrogen, which can damage the lungs and play a part in summer smog episodes. Those emissions currently result from the use of petrol engines, which, as I shall demonstrate, are well tackled by the use of liquified petroleum gas. The amount of encouragement through the VED arrangements for the uptake of vehicles powered by such fuels is zero. It is the lack of consistency that persuaded me in the first place to table the new clause and the amendments.
It is important to consider the detail because we then find that, of the 10 cars with the lowest carbon dioxide emissions, only five have an engine size of less than 1100 cc; the rest are diesel-engine vehicles. Secondly, the best performing vehicles have carbon dioxide emissions of between 129 and 139 g per kilometre. Current technology is already incorporated in some cars; they will meet the 2008 figure. Under the present VED arrangements, there is nothing fiscally to encourage the uptake of such vehicles.
Cars with engine sizes of less than 1100 cc have carbon dioxide levels ranging from 129 g to a massive 172 g per kilometre. It is odd that the arbitrary use of 1100 cc means that the Government are encouraging vehicles with carbon dioxide emissions that are not at the top end of environmental friendliness; they are at the bottom end—if I can put the matter in terms of good and bad. An examination of the logic of the current VED proposals shows that they seem to encourage the wrong kind of cars. My amendments give the Government the opportunity to correct that damage.
Although I have prayed in aid of my arguments the 2008 agreement of 140 g of carbon dioxide per kilometre, the amendments may encourage the Government to consider the fact that other cars are already in existence that perform markedly better than the 172 g that I quoted but whose engine size is above 1100 cc. The Ford Ka at 155 g, or the Nissan Micra at 151 g are two good examples of vehicles that might be encouraged. I shall not read out the exhaustive list of cars that meet the 140 g output—the subject of my amendments—but it includes the Peugeot 106 diesel, the Volkswagen 1.9 diesel mark 3, the Audi A3 diesel and the Ford Focus 1.8 diesel. Many other diesel cars, because of their relative fuel efficiency, already meet the 140 g output of carbon dioxide per kilometre. Sadly, however, they do not benefit from the Government's arguments on VED on cars with engines of 1100 cc or below.
We should consider alternative fuels. I shall apply the same logic as I have already used, but to cars powered by liquefied petroleum gas. The reference to engine capacity is purely arbitrary; it does not take proper note of the logic of trying to encourage more environmentally friendly cars. Liquefied petroleum gas is good on carbon dioxide; it deals effectively with benzine emissions, which can cause particular health risks. It deals well with particulates and PM 10s, with sulphur dioxide, oxides of nitrogen and ozone emissions. I will not list all the medical benefits, but heart disease and respiratory problems will certainly be affected by a reduction in those emissions.
In fairness, the Government are backing their own policy of encouraging the uptake of liquefied petroleum gas. I am advised that the Deputy Prime Minister drives a car that is powered by that fuel—as are most of the Government's car and despatch agency vehicles. Sadly, however, by the end of 1998, just under 8,000 vehicles were powered by that fuel source.
I can think of two reasons why such an obviously environmentally friendly fuel has not enjoyed a greater uptake, and they are addressed by my amendments, which deal with the tax relief arguments.
There is no well-established infrastructure for the refuelling of cars with liquified petroleum gas.

Mr. Tim Loughton: In past Budgets, the present Government gave specific tax incentives for the conversion of buses and lorries to use road fuel gases. Those incentives were not nearly sufficient because, throughout the country, fewer than 100 lorries and 100 buses benefited from them. The problem is not limited to cars.

Mr. Jack: My hon. Friend makes a telling and helpful point. In my view, if there was some fiscal encouragement to install the necessary infrastructure, more cars would be converted to use liquified petroleum gas.
The second of my amendments would encourage the conversion of fleet vehicles to run on liquified petroleum gas. That fuel beats petrol and diesel on all of the polluting emissions that I mentioned except carbon dioxide. It is a very environmentally friendly and health-conscious fuel.
Sadly, the Government appear to have missed a significant opportunity to start the process of encouraging the uptake of such fuel, and the development of the motor vehicle technology that would help to achieve the Kyoto targets by reducing damaging emissions earlier than agreed. For some reason—in my opinion, only to catch a cheap headline—the Government arbitrarily drew the line at 1100 cc. As a result, they have an inconsistent and illogical approach to their objective of encouraging cars that are more environmentally friendly. In the case of liquified petroleum gas, they have completely missed the opportunity to encourage earlier uptake among cars powered by that fuel.
There is compelling evidence that the increased use of liquified petroleum gas would save more than £10 billion in health care and damage to the environment—especially by reducing particulate levels—by improving air quality. There would be many accompanying savings.
My proposal is self-financing. Often, when we advanced perfectly respectable ideas to improve the Finance Bill, we were shot down in proverbial flames because they would cost money. However, I am now suggesting something that will save well in excess of its costs, which the Calor Group has calculated as a net figure of £607,000—the tax costs of encouraging the installation of the infrastructure for LPG. One company, Shell, has expressed willingness to install the infrastructure, but there is scepticism in the industry about how quickly that development will be made. The modest proposals that I am putting before the House tonight would effectively save far more money in preventing damage to the person and the environment than they would cost in tax terms. If the Government were to agree to my proposals this evening, it would be a worthwhile step on the way to achieving their objectives earlier than expected.

Mr. Fabricant: I support the new clause so ably moved by my right hon. Friend the Member for Fylde (Mr. Jack). It gives the lie to the Labour Government's claims that the Budget is environmentally friendly. The fact that the arbitrary cut-off figure of 1100 cc generated a net income, in its first year alone, in excess of ¤40 million simply shows that it is yet another stealth tax, and is even more deceitful than the average stealth tax because it was introduced in the guise of being environmentally friendly.
12 midnight
The new clause and amendments tabled by my right hon. Friend meet the Kyoto accord and follow on from the principles of the Rio de Janeiro summit, which was established by a former leader of the Conservative party and Prime Minister, Lady Thatcher, who is now in another place. She established the conference in Rio de Janeiro and was instrumental in setting the targets that other Governments seek to follow. The vehicle excise duties set up in the Budget do nothing for achieving these targets.
As my right hon. Friend has already asked, why have the Government, instead of saying that there should be a cut-off point of 1100 cc, not specified a cut-off point that


is related to the emission of particulates or carbon dioxide? Why, for example, have they not encouraged, as has the republic—that is the right way to put it—of California, the introduction of catalytic converters to Californian standards, which can reduce the emission of carbon dioxide to less than 110 g per kilometre. There is—[Interruption.] The Secretary of State for Scotland says from a sedentary position that it is typical that I do not mention British—[Interruption.] I give way to the right hon. Gentleman. I did not understand or hear what he said.

The Secretary of State for Scotland (Dr. John Reid): I said that California has excluded almost all British cars. Is he suggesting that we do that here?

Mr. Fabricant: The right hon. Gentleman raises an interesting point. If the Government, instead of carping, understood a little about emissions—not from their mouths, but real emissions—and a little about industry, and introduced standards that would reduce the emissions of carbon dioxide, British cars would not be excluded. They are excluded because they do not meet Californian emission standards, and they should. We should aspire to those standards in the United Kingdom and not mock them. The Government mock them because they do not understand.
When my right hon. Friend the Member for Fylde was talking about 140 g per kilometre, I could see the eyes of Labour Members glazing over. They did not understand. They are innumerate. They understand only pound signs, stealth tax and the spin to try to make out that the measures that they are taking, which are primarily to raise tax, are designed to produce a cleaner environment, They are trying to misguide the population. They will not produce a cleaner environment by such means.
We have a chicken-and-egg situation with regard to liquefied petroleum gas, which is a very clean way of generating power for motor vehicles. However, my right hon. Friend the Member for Fylde will be the first to concede that using LPG reduces the power output of a vehicle by about 20 per cent. The real reason why there are so few cars using LPG is that despite the best endeavours of companies such as Shell, there are only 14 outlets in the United Kingdom selling it.

Mr. Jack: Is my hon. Friend aware that the question of loss of power output has been more than addressed? That has been ably demonstrated by the fact that one of the leading cars in the Vauxhall Vectra racing category happens to be powered by LPG.

Mr. Fabricant: I am interested to hear that. I believe that the Volvo, which is the only commercially available car that has a device to enable it to use non-leaded fuels and LPG, loses 20 per cent. of its power when switched to LPG.

Mr. Lindsay Hoyle: The hon. Gentleman may not be aware that a very good British car—the Vauxhall Vectra—has such a switch.

Mr. Fabricant: I am pleased to hear that. Like the hon. Gentleman, who is a powerful advocate for

British industry, and particularly British Aerospace, I would like to see the British car industry doing well and exporting to California. May I say how shocked I was that the right hon. Gentleman the Secretary of State—I might say my right hon. Friend—should think for one moment that I would not wish to see British cars exported to California.
If the Government were truly interested in the emission of particulates, carbon dioxide and other pollutants, they would focus on the emissions, rather than setting arbitrary sizes of car engine.

Mr. Richard Page: I hope that my hon. Friend will develop the argument and explain to the House why the Government have banned the production and licensing of gas-powered electricity stations, as opposed to letting them continue with coal power, which produces far more emissions and environmental damage.

Mr. Fabricant: My hon. Friend is right. Although carbon dioxide is extremely dangerous and damaging to the environment—we have all heard of the greenhouse effect—he knows that the power stations fuelled by oil and by coal produce sulphur dioxide, which is an even greater pollutant. One can use as many cleaners as one likes in the emission chimneys; the emission of sulphur dioxide is still damaging, and is in breach of the Kyoto and the Rio de Janeiro targets.
Let us not be confused or beguiled by the Government's weasel words. The Government are not interested in ensuring that our environment remains safe for the generations that will follow. If they were, they would tax emissions. Instead, they tax the size of the engine. They tax it to the tune of £40 million in net gain this year—as I said, yet another stealth tax.
By how much will that increase in years to come? The world will get warmer and warmer, and become more and more polluted. We will have a car industry that still cannot sell into California, as the Secretary of State for Scotland said from the Treasury Bench, because in California people are truly concerned about their environment, so they are concerned with output and emissions.
I should have liked the Government to give real tax incentives for experimentation in the use of liquid hydrogen, which has not yet been developed in this country. Liquid hydrogen is one of the cleanest forms of fuel for the internal combustion engine. The sole emission of liquid hydrogen is steam.

Mr. Page: Is it not explosive?

Mr. Fabricant: Liquid hydrogen is less explosive than petrol.
Before we all get carried away with diesel, may I point out to my right hon. Friend the Member for Fylde that it is in many ways dirtier than non-leaded petrol. Whereas non-leaded petrol can produce long-term pollution of the environment, diesel with its particulates is particularly known for causing asthma, especially in schools located near main roads.
I ask the Government to consider the amendments tabled by my right hon. Friend. I wait with interest to hear how the Government justify their claim that the original


measure was an environmentally friendly move. Even if they deny that it would raise £40 million for the Revenue, will they not come clean and say at least that it was yet another example of Labour spin?

Mr. Loughton: I support my right hon. Friend the Member for Fylde (Mr. Jack) and new clause 10.
At the outset, I should declare an interest. A few months ago, together with the hon. Member for Peterborough (Mrs. Brinton), I was given a spin round Brands Hatch in the aforementioned Vauxhall Vectra at 116 mph. When we got out, my make-up was rather less smudged than hers. The car certainly revealed no loss of power compared with petrol-driven racing cars. It is the only liquified petroleum gas-driven racing car in the world and I gather that it is currently second in the league tables. There is certainly no difference in that respect.

Mr. Fabricant: Is not a larger engine required and is not fuel consumption therefore greater?

Mr. Loughton: No.
My hon. Friend the Member for Lichfield (Mr. Fabricant) was right when he said that this is a chicken-and-egg problem. I do not want to go into the environmental and health benefits of road fuel gases, as my right hon. Friend the Member for Fylde has done, but the problem is that there are only about 135 points of service for road fuel gases even though this country has about 19,000 service stations. There are difficulties with access.
There is an LPG service station in my constituency, but there are no others for miles around. The key to the success of LPG—and, indeed, of compressed natural gas—is infrastructure and making tax concessions to create that infrastructure. Installing an LPG pump at the average service station costs in excess of £30,000; installing the infrastructure to enable compressed natural gas to be pumped costs much more. The key to the installation of such pumps is businesses realising that there is a market for the product and the key to that market is company car fleets.
About one car in 10 in this country is a company car, but 50 per cent. of all new cars are company cars. We need to give tax incentives for company car fleet operators to convert their cars to road fuel gas or to buy road fuel gas-driven cars in the first place. At the same time, we need to give tax incentives to the manufacturers of those cars so that they will produce them at rates that are competitive with those of the diesel and fossil fuel-driven cars about which we have heard so much.
One of the few measures that we welcomed in the Budget was the 29 per cent. reduction in taxation on road fuel gases. We found out about it only in the small print and it was a great shame that the Government did not sound off about it rather more. That good measure followed another good measure that was introduced by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) in a Budget about five years ago. He reduced the duty on road fuel gases by 25 per cent.
Not enough has been done despite those two, proportionately large moves being made. The duty on road fuel gases in this country is still higher than in any other European Union country. Certain European countries, such as Belgium, do not tax road fuel gases or

LPG at all. We need to make a bold move on taxation—not only on fuel duty, but to enable people to install the pumps and the infrastructure necessary to make such products available.
Getting sales of unleaded petrol off the ground was a great success of the previous Government. They succeeded only because they made a bold move—slashing the duty on unleaded fuel—and because such fuel was readily available in service stations. A new pump head had to be put on the same sort of tank and, in many cases, people had to put an extra widget on to the engine—a 30-minute job. However, the job is far more substantial on road fuel gas-fired vehicles, which is why tax allowances are required to speed things up.
The industry would tell the House that it needs at least a five-year stability plan to show that the Government, whoever they are, are committed to promoting tax incentives and much wider use of road fuel gas-fired cars.

Mr. Edward Davey: I generally agree with what the hon. Gentleman and his hon. Friends are trying to do. Does he agree that other clean fuel technologies, such as fuel cell technologies, should also be promoted by the tax incentives he proposes?

Mr. Loughton: I entirely agree, but those technologies are still some way off. In fact, 100 per cent. tax allowances are available in some circumstances, including for equipment for scientific research to develop technologies. We need immediate action to promote the use of road fuel gases over the next few years. The Kyoto targets are not many years off, and by the time that new technology comes in, it will be too late to achieve them.
By promoting the use of road fuel gases, we would increase the residual value of cars. Dual fuel-driven cars are a current option, but conversion is much more expensive. If drivers are guaranteed to be close to a pump using road fuel gases, the costs will be brought down, and there are also economies of scale. Grants are available from the Energy Saving Trust for conversion, but such cars would be cheaper if the fuel were more readily available.
There are also implications for noise pollution. Companies such as the John Lewis Partnership and Safeway have converted or bought vehicles that operate on LPG because they are quieter as well as more environmentally friendly, which enables deliveries to shops in residential areas at anti-social times. They can reach the shops more quickly, avoiding adding to the traffic congestion that costs British industry so much.
The new clause would give more of a kick-start to the greater use of road fuel gases than merely reducing duty. It is no use reducing the duty on fuel if people cannot get the stuff. Manufacturers and operators of petrol stations will not make a capital commitment unless they are convinced that there will be some payback over, say, five years. New clause 10 sends a firm message to the industry that change will not cost much in the short term, but will have an enormous payback in the medium term, not only in revenue, but in savings from the promotion of the health of the nation.

Mr. St. Aubyn: I support the new clause tabled by my right hon. Friend the Member for Fylde (Mr. Jack).


I apologise for not having been here to hear him move it, but I watched his progress carefully on a television monitor.
During the Committee stage, I, too, proposed the encouragement of the use of liquid petroleum gas. One of the key movers of that project, the British Oxygen Company, is based in my constituency. Everyone involved in the project welcomed the reduction in duty rather quietly announced after the Budget, but was concerned that it was not enough. We need more petrol stations providing road fuel gas outlets. In Committee, we heard startling statistics about how far one might drive by filling up with LPG. Of course, it depends on how big the car's tank is, but we need many more LPG outlets if the idea is to take off.
A car converted to LPG requires expensive charges for substantial checks that it is roadworthy. Cars carrying the new fuel must be safe, and the cost of the fuel tank is another hurdle in the way of wider use. The basic cost of tanks is perhaps between £500 and £1,000, but safety checks add greatly to the cost, wiping out the benefit of Government grants. I urge the Minister to give that some thought when she responds to the debate.
If this conversion is to happen it will require further research. I regret the fact that the hon. Member for Peterborough (Mrs. Brinton) is not present. During the Committee, her thoughts were rather skimpy, to say the least, and tonight, they are not to be had at all. That is regrettable, because the heart of the research into LPG engines is at Perkins Engines in Peterborough. That company was the subject of a serious takeover bid, and it is well known that its new owners are reviewing whether this research project should go ahead.
The comments of Ministers about the LPG project, and about what they are prepared to do to encourage the infrastructure without which the project will not succeed, could have a serious effect on the viability of the research programme and on the willingness of the new owners, Caterpillar, to invest in the project. That would affect employees in Peterborough, and it would have a knock-on effect on employees at BOC in my constituency, and all that it has invested in the project so far. BOC has converted its vehicles to run on LPG, and many other firms are looking into that.
A firm in Cranleigh in the southern end of my constituency takes cars around the country for those who wish to travel by air. It is the air equivalent of motorail. If someone is flying up to Edinburgh, instead of putting his car on the back end of a train, he leaves it at Gatwick airport, where it is put with others on the back of a trailer and driven up to Edinburgh overnight. His car is ready for him when he arrives at his hotel in the morning. For the modern business traveller who uses his car as a mobile office, this is a tremendous saving, because he arrives without the hassle of having to drive all that way.

Mr. Page: I suggest that my hon. Friend recommends to his constituents that they take a hire car in Scotland. That would probably be a lot cheaper.

Mr. Deputy Speaker: Order. I suggest that we come back to the matter in hand.

Mr. St. Aubyn: That firm ensures that the environmental impact is much reduced, because it takes

all those cars up north in one go. The impact is reduced even further because it has chosen to invest in LPG vehicles. That works because it can manage to make the journey, as there are enough fuel stations where LPG is available. It enables the mobile office to move with the business executive, which is not possible with a hire car. To extend that service, many more fuel points are required around the country. That is why we shall listen carefully to the Economic Secretary's response.

Ms Hewitt: I am delighted to hear from the right hon. Member for Fylde (Mr. Jack), and from the other hon. Members who spoke with such enthusiasm about cleaner cars and cleaner fuels. We share their enthusiasm, and the Government are taking practical and consistent action to encourage cleaner cars and cleaner fuels. I shall say a little about that action before I explain why the new clause is unnecessary and the amendments are impracticable.
As several hon. Members have said, in the Budget in March, my right hon. Friend the Chancellor cut the duty on road fuel gases by 29 per cent. As a result, the duty differential is now the largest in Europe, and the duty on road fuel gas is only a fifth of that on diesel. We have committed ourselves to maintaining that differential for the lifetime of this Parliament, which will help to give confidence and stability to those who invest in the infrastructure of road fuel gas filling stations, and to those who are buying or converting to gas-powered vehicles.
Let me also mention—as others have not yet done so—the Energy Saving Trust's powershift programme. The programme provides grants to help cover the additional purchasing costs of gas-powered vehicles, and to help those who wish to convert their vehicles to gas or change their vehicles. In some instances, it can meet up to 75 per cent. of conversion costs. We have also taken steps to encourage the use of road fuel gas by company car fleets. Since 6 April 1998, the extra cost of enabling company cars to run on road fuel gas has been disregarded in the calculation of the company car benefit taxable on employees.
It is clear that there are already substantial incentives for people to buy or convert to gas-fuelled vehicles. As the right hon. Member for Fylde pointed out, the problem has not been encouraging people to use gas; it has been the lack of an infrastructure providing filling stations at which they can buy it.

Mr. Loughton: The Minister specifically mentioned a tax change in the Budget in 1998 relating to the capital cost of company cars. That, of course, was down to an amendment to the Finance Bill tabled by Conservative Members. Can the Minister tell us how many cars have converted to road fuel gas since that date?

Ms Hewitt: It is still quite a small number. As I was about to say, and as several hon. Members have already said, the problem is that the country does not yet possess an infrastructure providing filling stations where drivers can easily buy road fuel gas. But—as hon. Members have said today, and as was said in Committee—both Shell UK and BP have made the welcome announcement that they will implement major investment programmes to ensure that there is a network of LPG sites on forecourts throughout the United Kingdom. Shell UK has announced a—10 million investment programme designed to make LPG available to


80 per cent. of motorists by 2001, while BP aims to have 300 of its forecourts dispensing LPG within the next five years, and 75 sites on line by the millennium.

Mr. St. Aubyn: In Committee, I asked the Minister what proportion of Shell's total forecourt investment the £10 million represented in the coming year. She did not have the figures then; does she have them now?

Ms Hewitt: That is really a matter for Shell rather than for me, but I shall try to write to the hon. Gentleman.
The welcome investment in infrastructure to which I have referred is happening without the proposed special capital allowances. Although I share the objective of the right hon. Member for Fylde, I consider it unnecessary to introduce such allowances. In my view, this is a deadweight proposal; but we will continue to monitor the take-up of road fuel gas, and will keep the case for additional incentives under review.
I should mention in passing that special capital allowances for gas-powered vehicles and gas refuelling points would doubtless have to be notified to the European Commission as a state aid, and would probably also have to be notified to the code of conduct group on business taxation. That may well interest several Conservative Members.
I hope that, for those reasons, the right hon. Member for Fylde will feel able to withdraw his motion. If he does not, I will ask my hon. Friends to oppose it.
Let me now turn to the amendments. As the right hon. Gentleman and, I hope, others will know, in the autumn of 2000 we shall introduce a system of graduated vehicle excise duty for new vehicles based primarily on their carbon dioxide emissions. That will do what several hon. Members have urged us to do this evening: it will create a VED system that directly relates VED paid on new cars to their fuel efficiency and their level of emissions. It will give manufacturers and motorists alike a real incentive to take environmental issues into account when deciding on the type of vehicles that they make or buy. We are working closely with manufacturers to ensure that they have the systems in place to supply our licensing authorities with the emissions data on which we shall base the new system, but that cannot physically be done before autumn 2000.
12.30 am
I can just imagine what the motor manufacturing industry would say if we were to accept the amendment and to demand that it puts in place brand new information systems, to be up and running and linked to the VED system by 1 January 2000.

Mr. Jack: Does the Minister not agree that information is already available about the carbon dioxide outputs of the vehicles that I listed? The information is there now and presents no barrier whatever to the achievement of the proposal in my two amendments.

Ms Hewitt: The right hon. Gentleman is missing the point. New cars have been tested for carbon dioxide emissions since 1997, but the information has not been collated in a form that can be used to calculate VED rates. As I have said, manufacturers, the Driver and Vehicle Licensing Agency and computer suppliers are working together to put the systems in place, but they will not be in

place and ready to operate before autumn 2000. For the vast majority of cars—those registered before 1997—no carbon dioxide information is readily available.
The right hon. Gentleman and other hon. Members referred to the initial step that we took in the Finance Bill following last year's pledge by the Chancellor. We introduced a reduced rate of £100 VED for existing cars with engines up to 1100 cc. We did that not at a revenue gain, but at a revenue cost of £85 million, as the Red Book makes clear.
Of course, engine size is not the same as carbon dioxide emissions. It is not a perfect equivalent for environmental damage and pollution. None the less, it is the best available proxy for fuel efficiency that we have and can obtain from the information that is held by the licensing authorities. The measure has given a tax cut to drivers of nearly 2 million smaller cars.
Amendment No. 29 would extend the reduced rate to vehicles that are certified as using LPG as a fuel. I have referred to the incentives that the Government have already introduced to encourage such cars, but, as the right hon. Member for Fylde knows, many of the vehicles that use LPG can run on both gas and petrol. Indeed, according to DVLA records, only some 960 currently registered vehicles run solely on road fuel gas. About 10 times that number—some 9,300 bi-fuel vehicles—can run on either gas or fuel. As the amendment stands, bi-fuel vehicles that are capable of running on gas, but may not for most of the time, would none the less qualify for the reduced rate. Clearly, that would not make sense.
I hope that the right hon. Member for Fylde will support the Government's practical steps to encourage the conversion to road fuel gas and the purchase of smaller and cleaner cars, and agree to withdraw his new clause. If not, I must urge my hon. Friends to vote against it.

Mr. Jack: Although I appreciate the Minister putting on record some of the Government's efforts in the sector, much of what she said in rejecting perhaps technically flawed amendments was not consistent, although she used the word "consistent" at the beginning of her remarks. I understand that there is a legal requirement, if not in United Kingdom law, certainly at European level, to capture and to retain carbon dioxide data on car emissions. Therefore, that information is available and we have the voluntary agreement, which I mentioned and which is mentioned in the Government's consultation document on graduated VED.
It would not be difficult for a motor manufacturer—I mentioned a number of those—to furnish the Government with that information, which such manufacturers are, I understand, legally required to do.
I pray in aid a footnote to a briefing from the Society of Motor Manufacturers and Traders, which states:
It was not a legal requirement to collect carbon dioxide data from new passenger cars before 1997".
Admittedly, therefore, it might be difficult to visit my argument upon pre-1997 cars. However, clearly, the hon. Lady's argument falls like a pack of cards when applied to cars manufactured after 1997, as that information is available, and using it would be entirely consistent with the Government's own policy.
I was worried by the hon. Lady's argument—which she based entirely on carbon dioxide emissions—that the Government favour a VED that would encourage


environmental improvement, as she not only said that she supports liquified petroleum gas, but prayed in aid a slightly weaker hand when describing its merits.
When the Government make their proposals, the fleet will comprise cars of many different ages. It will be interesting to see how the Government cope with pre-1997 cars, on which data may not be available. I therefore fear that the second strand of the hon. Lady's argument, on consistency, may be difficult for the Government to maintain. Nevertheless, we shall have to await the outcome of the consultation exercise to discover how they will deal with that.
I hope that, when the consultation exercise is concluded, the Government might find some way of rewarding people whose cars are either dual fuel or run solely on LPG, as such cars offer enormous benefits. I am sorry that the hon. Lady had not consulted the Department of Health on the matter. I am sure that, given a chance, the Chief Secretary to the Treasury—who is now in the Chamber, and is a former Health Minister—would have whispered in her ear not sweet nothings, but hard information on how wider introduction of LPG could reduce the number of those who have to go to hospital because of heart or respiratory conditions.
The hon. Lady also prayed in aid the work of certain fuel companies in creating an LPG infrastructure. There is some scepticism about just how widespread that network will be—I quoted figures of 400 forecourts; 200 depots, over a four-year period; and the conversion to LPG of 6,000 company cars. On the net tax effect of my proposals, I quoted £607,000. However, if such proposals were implemented, billions of pounds could be saved in the health budget. It is sad that the Government are not prepared to perform a very straightforward cost-benefit analysis when considering the amendments.
I am grateful for the support for the amendments that I have received from my hon. Friends, some of whom spoke on the matter with great knowledge. However, I acknowledge that the amendments may have technical deficiencies, and that the Government themselves may not have the data necessary to apply the proposals. This debate has been useful, perhaps not only in teasing out the Treasury's thin thinking on the matter, but in encouraging it to do more work on it.
I therefore beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 11

ADMINISTRATIVE EFFICIENCY OF THE TAX SYSTEM

'The annual Financial Statement and Budget Report shall include an analysis of the effect of the Budget measures on the administrative efficiency of the tax system, including the following matters:

(a) the change in the number of taxes, tax rates, tax allowances and reliefs;
(b) the estimated change in annual tax compliance costs for the private, public and voluntary sectors; and
(c) progress on the simplification of tax administration for all taxpayers.'.—[Mr. Edward Davey.]

Brought up, and read the First time.

Mr. Edward Davey: I beg to move, That the clause be read a Second time.
It may strike hon. Members as odd that, at this late hour, we are debating a new clause on tax administration, but, as we pass the Finance Bill, we should spend some time debating the matter. In 1986-87, the Tax Law Review Committee estimated that the tax administration industry, in both the public and private sectors, accounted for 1.5 per cent. of national income. At current prices, that means that the administration industry is worth more than £12 billion—as much as the agriculture, fisheries and forestry industries. The way in which we regulate that significant industry and the policies that we give it to administer affect many people and involve a lot of money. It is incumbent on us to look at the serious issues involved.
To their credit, the Government have introduced new measures in clauses 123 and 124 dealing with electronic documentation to assist the administration of the tax system. That is welcome, but we need to approach the issue with humility. Having considered all the factors that make the tax system so complicated, tax expert Robin Godman wrote in Taxation Practitioner in July last year:
In fact, the Budget and the Finance Bill cycle are very significant factors in the causes of complexity".
What we are doing today—what some of us have been doing for many months—adds to that complexity. We need to look at the process and try to find ways to reform matters and make them simpler—perhaps even to reduce the size of the industry. After all, it does not really help our balance of payments.
That has been a recurrent theme over the years. Many committees have been set up. The Institute for Fiscal Studies was set up more than 30 years ago. The Meade committee report in 1978 influenced the Conservative Government. Recently, we have seen some major new studies on the tax system. The Bath report, published last year—its full title is "The Tax Compliance Costs for Employers of PAYE and the National Insurance System"—has become a seminal work on how we should look at the issues. The Government sponsored the study via the Inland Revenue and the Department of Social Security. It had some hard-hitting conclusions on compliance costs that should make us sit back and think.
The Select Committee on the Treasury has looked at the Inland Revenue and spent some time analysing the report from Bath university. Its findings were published at the end of May this year. This is a live subject and it deserves our attention.
What are the root causes of complexity? The foremost are the taxation policies of any Government. The Government have introduced a significant shift in the direction of taxation policy. We have seen some good signs, particularly in the Taylor report's comments on working towards the integration of the national insurance system with the income tax system. The Government have taken on board some of those important proposals, but they need to go further. The Government's proposals to merge the Inland Revenue with the Contributions Agency are progressive, and will help to reduce administration costs. There are other measures in the Bill that will also reduce complexity, including the abolition of mortgage interest tax relief and the married couples allowance. Those measures are going in the right direction for simplicity.
That is on the positive side of the ledger. Unfortunately, there are too many items on the negative side in this Bill and previous ones. The 10p tax rate that we debated earlier this evening has introduced a great deal of complexity for the personal and commercial sectors. Last year's Finance Act introduced the capital gains tax taper relief, causing huge complexities for many people operating the tax system. The system of tax credits, including the working families tax credit, the child care tax credit and now the children's tax credit, is an innovation in tax administration that I fear will increase compliance costs substantially for the private sector. Those policy changes impact significantly, and the net effect of all the tax changes has been to increase substantially the number of tax rates facing the taxpayer.
12.45 am
For ordinary taxpayers, there are three rates on earned income—10, 23 and 40 per cent. For dividend tax, we have 10 and 32.5 per cent. For capital and savings, we have 20 and 40 per cent. For trust income, we have 20, 23 and 34 per cent. For those receiving children's tax credit in the years to come, there will be a tapered tax rate and, at some stage, people will be paying a tax rate of 46.7 per cent. That is before we get to the many rates that have been introduced with the CGT taper relief. The number of rates has gone up, and that is why we propose that the Government say, when they introduce their Budget report, how many allowances, rates and reliefs there are as a result of the Budget.
Complexity comes not only from policy changes, but from the administrative detail, regulations and rules that come from the tax authorities, be it the Inland Revenue or Customs and Excise. Those are the root of the compliance costs for business. A business man—even someone employing only one or two people—must read all the information and regulations to ensure that he complies. Also, he must understand them—and that can take some doing. This is not just a one-off exercise. Employers must keep up to date because the tax law is forever changing.
For small businesses, huge compliance costs are involved. They must come to terms with the coding for the UK's cumulative tax system. They must operate two forms of direct taxation—income tax and national insurance. Anyone who has had to deal with the complexities of class 2 national insurance for the self-employed will know how taxes that raise only small amounts of revenue can involve huge complexity, and can cause great concern for small businesses.
The Bath report showed the extent of compliance costs and how they unfairly affect small businesses. The report showed that compliance costs per employee for the smallest employers—those employing one to four people—were £288 per annum. For the largest employers—firms employing 5,000 employees or more—the compliance costs were just £5 per annum. The relativities are even worse, and small businesses are even more badly affected. The gains that large employers get from the cash flow benefits of collecting the money from their employees before passing it on to the Inland Revenue are far larger than those for smaller employers.
The Bath study showed that the gains that large employers get from that float income outweigh the costs of administering the pay roll. Large employers do very

well from the current tax system, and small employers do not. That is a serious issue when one looks to the long term. The UK's cumulative tax system was designed for a static labour market, when people stayed in their jobs for many years, when there were low staff turnovers and when we had many more larger employers. However, we do not have that sort of labour market now, and that will be the case increasingly in the future. We will have a much more dynamic labour market, with people changing jobs several times during their career. We will have a greater number of smaller companies. That crucial finding of the Bath report was not picked up in the previous studies of tax administration.
The study showed that many of the compliance costs come when one takes on a new employee and a new coding has to be found. In theory, the P45 system should reduce those costs, but the study showed that it does not tend to work. That cannot be good for job creation.
The Treasury Select Committee report said that the Bath study pointed the way forward. It said:
We recommend that the Inland Revenue be given a target to reduce compliance costs.
That is absolutely right. The new clause would bring that about because it would force the Government to provide the information according to which targets could be set and progress measured
The report focused on the compliance costs for small businesses. If a similar study were done on the costs for the personal taxpayer and the voluntary sector, it would also show significant compliance costs, increasing over the past few years with the introduction of self-assessment and the working families tax credit. If such studies were available to the House—perhaps the Government should sponsor them—many more hon. Members would be concerned about the matter and urge the Government to review it for the next Finance Bill.
The complexity is not only in administrative detail but in the overall philosophy and culture of the Inland Revenue, which does not seem to emphasise the need for simplicity, which should be an objective of tax policy. With a simple tax system taxpayers—citizens—can more easily understand what is being raised in their name, and how. That will increase accountability and compliance, because, if people understand the system, they will be more willing to pay.
The Government said that they were in favour of simplifying the tax system. That was almost a manifesto pledge. The Chancellor has certainly said that he is pro-simplification. If he is to achieve that goal, he should consider the approach embodied in the new clause.
The new clause would build on initiatives set in train by previous Chancellors. Lord Howe was a great promoter of the tax law rewrite project, which was designed to try to simplify the wording of tax legislation. It is a signally good project, with support from hon. Members of all parties. Labour Members do not seem very interested, but they should be concerned about the regulatory burden that the tax system imposes on small businesses.
The project does not shorten the legislation but it makes it easier to understand, so that one does not have to read it several times to find out what on earth the legislators were on about and what tax laws we were trying to create. It is very important for simplification.
The people involved in the project have often argued for a technical finance Bill, to ensure that we get it right in the first place rather than pushing through imperfect


tax legislation and having to amend it the next year. That is certainly one way forward that I would urge the Government to consider.
I also urge the Government to examine the recommendations of the Select Committee on the Treasury in its report on the Inland Revenue. The Committee considered three options. The first was a royal commission on tax simplification: I think that that goes a little far, but it is a possibility the Government might want to consider. The second was a White Paper to be published by the Government at the start of each Parliament, in which they set out their direction for tax policy, so as to give tax practitioners and taxpayers an idea of where it was heading and encourage a little more coherence in the Government's tax thinking. That might be another way forward. However, the most impressive aspect of the Select Committee's analysis of the evidence that it heard was its emphasis of the need for longer-term planning of tax policy. That points toward the idea of a technical Finance Bill, so that there is greater consultation on tax measures to ensure that we get them right.
New clause 11 makes a more modest proposal: it simply asks that the Government provide information, so that we can see how their agenda for tax simplification is progressing. The new clause is based on paragraph 91 of the report of the Select Committee on the Treasury, recommendation (u), which states:
We recommend that in its response the Government gives its considered view on the options for simplifying the tax system we have discussed in this Report and sets out its own proposals for a systematic programme of simplification with a view to reducing compliance costs.
If the Government accept our new clause tonight, they will have gone a long way toward implementing that recommendation.

Mr. Flight: I welcome the Liberals' conversion to simpler and, by implication, lower taxes, given that one of the major causes of tax complexity is the overall rate of tax. I hope that they will not mind my saying that they are stealing our line. Earlier this evening, we heard a spirited speech from my hon. Friend the Member for Grantham and Stamford (Mr. Davies), who focused on the enormous complexity that has been introduced into our income tax system. The new clause would monitor that complexity and the cost to the private and public system, which is currently estimated to be £12 billion per annum. It would be useful if some specific measurement of the efficiency of specific taxes were included in the new clause—for example, ratios of collection costs to amount raised.
The Government's stance—that they are keen to simplify tax and have taken initiatives to do so—does not bear the light of day. Over the past two years, the Chancellor has introduced a substantial degree of complication into the tax system. Much of that has been done for headline spin, some has arisen from the mantra of more means testing, and some has been the result of the traditional and continuing Labour prejudice against people with capital, especially small capital. We have ended up with six different tax rates: the gimmick 10 per cent. rate, which does not apply to one's little bit of investment income; a 20 per cent. rate; a 23 per cent. rate; a 32.5 per

cent. top rate on dividend income for top-rate payers; a 40 per cent. rate; and a 44 per cent. rate for those who will be paying tax on the new child credit.
As has been said, there is a separate rate of taxation for trusts. The capital gains tax system is an absolute nightmare that needs to be reformed. There is very little chance that any individual will have the records necessary to calculate the old indexation and the new tapering rates. The Government seem to want ordinary individuals to have to employ accountants to keep and monitor those records. The present capital gains tax regime is unworkable.
1 am
The working families tax credit will cost employers a fortune to administer. On pension contributions, I wonder whether Labour Members realise that there are six different proportions of income that are allowable against tax as contributions for two different scales and different types of pension arrangements, depending on age. I do not blame the Government for that situation because it existed when they came to power, but if any Government were to consider reforming pensions, simplifying the tax rules for pensions would be the most important starting point.
There is an element in the tax system of losing touch with ordinary citizens. It is not surprising that elderly people whose means are small complain of being harassed when they are sent tax forms that they do not understand. More and more people are being dragged into the detailed self-assessment tax net and have to deal with concepts and calculations that they simply do not understand. Their returns will be wrong; the fines will go up, and the Government will find that the quite unnecessary complications in the personal tax system become enormously unpopular.
Citizens want tax rules that they can understand and remember. They want to be able to work out, almost on the back of an envelope, what their tax liabilities will be. There is no reason why tax rules for the average citizen should not be that simple—they were that simple not long ago.
The hon. Member for Kingston and Surbiton (Mr. Davey) pointed out that small business, which is the great creator of new employment in our society, is also particularly hard-hit by the growing web of tax complications, as the Bath report has shown.
To return to my starting point, one of the big background problems for all Governments is the fact that tax avoidance measures inevitably complicate the tax system. This country should never forget the major difference between tax avoidance and tax evasion. In Germany, there is no legal difference between the two concepts. A central part of culture in the Anglo-Saxon world is the distinction between that which is within the law and that which is without the law. Naturally, all Governments want to stop tax avoidance. I might add that most citizens naturally do not want to pay any more tax than they are obliged to. However, I suggest that there is growing Government paranoia about tax avoidance, which is nowhere better illustrated than in the recent IR35 proposals, which are not in the Finance Bill but will be implemented in April 2000.
There are, no doubt, people who use companies to reduce their income tax and national insurance charges. However, as much of the evidence demonstrates, most of


those cases occur in genuine entrepreneurial situations. People set up a business to hire out their services, particularly in the software industry, and they do so through a company. If the Government's proposals remain as they are, they will be a major disincentive to individual entrepreneurship in the service sector. People will not be able to offset their costs; there will be huge hassle in qualifying as an exempt company; and the money that they are paid will have full tax and national insurance stopped out of it.
The proposals will cause huge problems for professional firms. Professional lawyers who second their staff to organisations such as the Financial Services Authority, which will not be able to function without those staff, will face problems. Those proposals emanate purely from the Government's understandable but narrow focus on tax avoidance and their lack of thought about the knock-on effects and injustice caused by many of the proposals.
The best antidote to tax avoidance must be a lower tax regime. In the low tax regimes of the world, it is not worth the possible legal costs to try to make clever cuts or avoid taxation. We on the Opposition Benches have not changed our clothes: we stand for simpler and lower taxation. We very much share the spirit of the Liberal Democrats' new clause, delighted that they are obviously looking to make friends with us, having perhaps been a little rebuffed by Labour. What the amendment recommends is absolutely in the spirit of what we as a party stand for and always have stood for.

Mr. Page: It is not often that I welcome a Liberal Democrat amendment. I believe that it is the first time in 23 years; I do not rush these things. I congratulate the hon. Member for Kingston and Surbiton (Mr. Davey) on the new clause. It flags up problems that face any Government and the Inland Revenue. The point has been made—although obliquely, and perhaps not as intended. I am sorry that it is late and that it cannot be fully debated and allowed the gallop around the field that it deserves.
As matters of increasing complexity emerge in our taxation system, and as the Inland Revenue increasingly twists and turns and adds regulation on regulation to avoid the inevitable, the effect on small businesses will become intolerable. The hon. Member for Kingston and Surbiton mentioned the pressures on small businesses and the Bath report. Compliance costs are rising day by day, and small businesses are finding them an increasing burden to bear. I can quote some examples.
I know of a company that employs just over 100 people. It received a form from the Department of Trade and Industry the other day, which took the senior finance man four clear days to complete. If the company had not completed it, the panoply of law, pressure and fines would have descended on it. There must always be the temptation for those in small businesses to fill in any figure and send off the form, and then say, if ever checked, that they must have made a mistake. The person to whom I have referred was most conscientious; he did everything properly and filled the form in fully.
A company of more than 100 people can withstand such demands, but what is it like for a smaller firm, in which the finance man is required for the day-to-day handling of the company accounts? As time goes by, pressure on such smaller businesses will grow and grow.
It is no secret that I was hoping that new clauses 2 and 12, which deal with the IR35 question, would be selected for debate. My hon. Friend the Member for Grantham and Stamford (Mr. Davies) has touched on some of the problems that will result from that measure. Again, it will mean pressure on small businesses. Indeed, avoidance and perhaps even evasion may be brought about by the Inland Revenue's actions.
As night follows day, Inland Revenue solutions to tax avoidance often tend to throw the baby out with the bath water. I always find it sad that the Government, who are no doubt driven by their masters in the Inland Revenue, look more to traditional methods for the solution than to the future. I say that because I believe that we are on the edge of a trading revolution, at which new clause 11 hints. There will be huge consequences for tax raising, which may be somewhat similar to the way in which Gutenberg's invention of movable printing broke the vast powers of the Church some five centuries ago.
As hon. Members—I can see them looking at me—have instantly grasped, I am referring to the growth of internet trading. It would not surprise me to find that history repeats itself, with the Revenue trying to block certain internet activities, just as the Church tried to block the printing revolution that swept through Europe in the 15th century. You would correctly rule me out of order, Mr. Deputy Speaker, if I moved into the detail of how the Church's hold was greatly loosened—if not broken—at that time, although it would be fascinating and I know that Labour Members would love to hear it. However, it would be wrong for me to take that course. I merely point out that another major effect of the move away from handwriting to printing and publishing in quantity was to contribute to breaking the hold of Latin as a common language at that time. The IT revolution that is introducing the internet will be the reverse of that because it brings with it a common language—English, or perhaps I should say American.
The new clause provides for an analysis of the Budget which will mean an annual reassessment of everything included under the new clause—the costs of compliance and of tax raising and collection will have to be reviewed constantly. Such matters will not be dealt with once and then forgotten for five or 10 years; their consideration will have to be on-going.
The Government seem unaware of the tide of change that is sweeping towards traditional trading patterns. If they are aware of it, they will realise at the same time that their powers are strictly limited. Politicians want to police the internet—perhaps to stop pornography. However, the majority of those politicians do not realise that that is the least of the threats to the established order. The new clause focuses on the accelerating trend of change. Internet users can, and will, use encryptions to transmit electronic data that will be impossible for tax inspectors to read. At least, data will be readable only at vast expense by using an extremely large computer to crack some of those encryption codes. As such codes use large prime numbers, a vast amount of computer time will be needed to break down a relatively short message. That will be impractical for the state to do.
The new clause hints at an erosion of the tax base which will have severe consequences for Government revenues. To remove such controls from the Government will mean a move away from central provision to a situation in which individuals—not politicians—decide on


the state that they want. Individuals will make decisions in many spheres of activity by paying for those activities themselves rather than relying on their provision by the state. That will result in a marked reduction in what Harold Wilson called the social wage. Such a tendency will be driven by the erosion of tax bases caused by the encryption of trading on the internet.
If anyone thinks that I am dreaming, or that this is pie in the sky, I tell them that the process has already started. It applies easily to goods for which information can be encrypted and made immune from tax inspection—films, music, airline and theatre tickets, advice of any kind, books, magazines, holidays and even, perhaps, the activities of personal service companies. The IR35 changes may well help to drive companies towards exactly what I have described. If we add to that the mobility of companies—the ability to trade elsewhere in the world—then it will require a Government who are fleet of foot and of mind to stay on top of that pile. The provisions of the new clause point in that direction.
Nothing proves a point better than the practical example that people will migrate—physically or electronically—to the most favourable tax regime. The last part of the new clause makes exactly that point. It says that the Budget report should include an analysis of the effect of the Budget measures on
progress on the simplification of tax administration for all taxpayers.
If that progress is not made, the taxpayer will migrate.
1.15 am
I have the privilege to be joint chairman of one of the most important all-party groups in the House—the all-party racing and bloodstock industries group. The Government have already been forced to cut VAT on training fees because of action by the Irish Government in reducing theirs, and to stem what was threatening to be a flood of horse migration. We have a much reduced stallion base in this country at the moment. Why? Because the Irish have a better tax regime on stallion allowances, so more and more people are sending their mares to Ireland. That is the physical movement towards a lower tax regime.
To take a current example of the way in which electronic means are enabling companies to avoid tax, a well-known bookmaker has set up its operation in Gibraltar, letting its clients off the requirement to pay betting tax of some 6 per cent. on winnings—a loss to Government revenues. The age of digital cash is before us; we ignore it at our peril.
It is late at night—[Horn. MEMBERS: "Hear, hear."] I take those cheers as encouragement to develop my argument, but I feel that I should draw my remarks to a close.
New clause 11 peels back the first corner in drawing attention to the huge changes that are upon us. I hope that the Financial Secretary—who rescued small businesses in her first year as a Minister and has inflicted the might of the Treasury in her second—will grasp the point that is being made tonight.

Sir Robert Smith: The hon. Member for South-West Hertfordshire (Mr. Page) mentioned the problem that

conscientious people face when the tax system is complex. The Government need to bear that in mind when considering new clause 11. The more complex one makes the tax system, the harder it is for the conscientious, but one does not necessarily catch those who are fleet of foot or less conscientious, who can evade or accidentally avoid the system. New clause 11 is partly designed to tackle the burden and stress placed on the conscientious.
I agree with the hon. Member for Arundel and South Downs (Mr. Flight) that new clause 11 would deter the Government from making a mess of IR35. I have with me a letter from the Institute of Chartered Accountants of Scotland, expressing great concern that IR35, as currently proposed and currently out for consultation, might do immense damage through its compliance costs.
The IT industry was mentioned. Worry has also been expressed in the media industry. However, as a result of where I come from, my postbag is obviously most heavily influenced by those who work in the oil industry, providing their services as single-person companies. There is concern about the extra burdens placed on the industries for which those people work, which must meet the costs of trying to police the system. Those who work in the industry have already experienced cuts in their income because contracting fees have been reduced, and further cuts are likely in order to pick up the extra costs of taking on board pay-as-you-earn and national insurance.
I hope that, when the Government consider IR35, they will show some of the flexibility and understanding that they eventually did when they considered roll-over relief for capital gains tax. I hope that they will enter into effective consultation with the industry to work out where the real concerns are on tax avoidance. In that way they will avoid using a sledgehammer to crack a nut, which appears to be their approach at the moment.
I urge the Government to accept new clause 11 because it is in their own interests to have it sitting there, waiting for them every year, to remind them not to put their foot in it, not to make mistakes, not to damage industry, and to think carefully before introducing any new tax system.

Mrs. Roche: The debate has been interesting, but new clause 11 is completely unnecessary; I shall say why.
First, the material published on Budget day contains comprehensive details of any changes in the number of taxes, tax rates, allowances and reliefs. Secondly, the Government also publish regulatory impact assessments for those measures included in the Budget that have compliance implications for businesses. Thirdly, the Government are committed to simplifying the administration of the tax system wherever possible. We are also looking to improve the administration of taxes and to restrict compliance burdens—for example, by introducing the new Small Business Service.
Including the new clause in the Bill would therefore add nothing. Indeed, it would be unnecessary regulation. The Treasury has already set out a transparent framework within which it will work in the code for fiscal stability. That outlines the Government's commonsense approach


to managing fiscal policy in the long-term interests of the country. I therefore urge the House to reject the new clause.

Mr. Edward Davey: I take it from the number of hon. Members who are in their places tonight that the theme that is expressed in the new clause has caught the attention of the House. It is a compelling new clause and there is interest in it. There are more hon. Members in their places for this debate than there were for almost all of the previous debates during today's sitting. I am rather pleased that we have been forced to debate the new clause tonight because there have been enough Members present to listen to the serious arguments that have been advanced.
I am delighted that we have won the support of the hon. Members for Arundel and South Downs (Mr. Flight) and for South-West Hertfordshire (Mr. Page). I am grateful for their kind words. However, they should not be as surprised as they seem to be that the Liberal Democrats propose such reforms. We and our predecessor parties have a long tradition of trying to simplify the tax system and reduce bureaucracy. For example, there are also proposals to integrate income tax and national insurance contributions.
In the Minister's admirably short reply she was rather dismissive, and unnecessarily so. She said that the new clause and the proposals set out in it were unnecessary. When referring to paragraph (c), she said that the Government are committed to simplification. If they accepted the new clause, they could give some solemnity to that commitment and take on the requirement that they should report to the House on every Budget day about progress towards simplification. That is not a hugely onerous regulation. The Minister seemed to suggest that the new clause represented unnecessary regulation. The Treasury does not appear to like regulation of itself but often it likes regulation of the private sector. We are proposing a sensible regulation.
Given the lateness of the hour, however, and given the Minister's assurances that the Government will move the agenda on—I hope that that comes to fruition in next year's Budget statement—I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Further consideration adjourned.—[Mr. Jamieson.]

Bill, not amended in the Committee, and as amended in the Standing Committee, to be further considered tomorrow.

CONTRACTS (RIGHTS OF THIRD PARTIES) BILL [LORDS]

Order for Second Reading read.

Motion made, and Question put forthwith, pursuant to Standing Order No. 90(6) (Second Reading committees), That the Bill be now read a Second time.

Question agreed to.

Bill accordingly read a Second time, and committed to a Standing Committee, pursuant to Standing Order No. 63 (Committal of Bills).

DELEGATED LEGISLATION

Mr. Deputy Speaker (Sir Alan Haselhurst): With permission, I shall put together the motions relating to delegated legislation.

Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Standing Committees on Delegated Legislation),

VALUE ADDED TAX

That the Value Added Tax (Abolition of Zero-Rating for Tax-Free Shops) Order 1999 (S.I., 1999, No. 1642), dated 11th June 1999, a copy of which was laid before this House on 1lth June, be approved.

CONTRACTING OUT

That the draft Contracting Out (Jury Summoning Functions) Order 1999, which was laid before this House on 14th June, be approved.—[Mr. Jamieson.]

Question agreed to.

DEREGULATION COMMITTEE

Ordered,

That Mr. Iain Coleman and Miss Geraldine Smith be discharged from the Deregulation Committee and Mr. Russell Brown and Mr. Andrew Love be added to the Committee.—[Mr. Jamieson.]

COMMITTEES

Mr. Deputy Speaker (Sir Alan Haselhurst): With permission, I shall put together the remaining motions relating to Committees.

Ordered,

AGRICULTURE COMMITTEE

That Mr. John Hayes be discharged from the Agriculture Committee, and Mr. Michael Jack be added to the Committee.

CATERING COMMITTEE

That Mrs. Jacqui Lait be discharged from the Catering Committee, and Mr. Michael Fabricant be added to the Committee.

ENVIRONMENT, TRANSPORT AND REGIONAL AFFAIRS COMMITTEE

That Mrs. Eleanor Laing be discharged from the Environment, Transport and Regional Affairs Committee, and Miss Anne McIntosh be added to the Committee.

FOREIGN AFFAIRS COMMITTEE

That Mr. Shaun Woodward be discharged from the Foreign Affairs Committee, and Sir David Madel be added to the Committee.

HEALTH COMMITTEE

That Mr. Robert Walter be discharged from the Health Committee, and Mr. Simon Burns be added to the Committee.

SCIENCE AND TECHNOLOGY COMMITTEE

That Mrs. Jacqui Lait be discharged from the Science and Technology Committee, and Mr. Robert Jackson be added to the Committee.

TRADE AND INDUSTRY COMMITTEE

That Mr. John Bercow be discharged from the Trade and Industry Committee, and Mr. Christopher Chope be added to the Committee.

TREASURY COMMITTEE

That Sir Peter Lloyd be discharged from the Treasury Committee, and Mr. Michael Fallon be added to the Committee.—[Mr. McWilliam, on behalf of the Committee of Selection.]

Orders of the Day — HIV-AIDS

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Jamieson.]

Dr. Gavin Strang: I am grateful for the opportunity to initiate this short debate on HIV and AIDS in the United Kingdom. HIV is the most important communicable disease in the UK. That is not my judgment, but that of the Public Health Laboratory Service Board. Since AIDS was first identified in the UK in 1981, a total of 32,200 HIV infections have been diagnosed. There have been 12,800 AIDS and HIV-related deaths, and more than 16,000 people are currently living with diagnosed HIV.
Thirteen years ago, I introduced the Bill that became the AIDS (Control) Act 1987. That Act requires health authorities to report annually about the disease—how many cases there are, and what the authorities are doing to help people with HIV-AIDS and to prevent the spread of HIV.
In introducing the Bill, I had three main objectives: first, to give us an understanding of the epidemic in each area of the United Kingdom; secondly, to tell us what health authorities and local authorities were doing on the ground, as a monitoring tool and in order that we could learn from best practice; and finally, to help ensure that there was a focus at national and local level on this terrible disease.
Much has changed since the Act went through Parliament. The profile of the disease is ever-changing. Sex between men remains the major route of transmission in the UK, but sex between men and women was the transmission route for more than a third of all newly diagnosed cases last year. The majority of those cases were acquired abroad, usually in sub-Saharan Africa.
One of the biggest successes has been in slowing the spread of HIV through intravenous drug use. Although that was once the major route of transmission in Scotland, the number of new cases of HIV transmitted by intravenous drug use has declined from 241 new diagnoses in 1986 to 25 last year. Such improvements can, however, be swiftly reversed, and indeed have been in other European countries.
There has also been tremendous progress in treatment for people with HIV and AIDS. For many years, AZT was the only drug licensed for use by people with HIV and AIDS. Now, there are several different classes of drugs that can be used in combination to prevent the onset of AIDS and to help prevent illness for people with AIDS.
These new treatments have brought their own challenges—challenges for individuals on tough drug regimes; challenges for our health services, which must cover the costs; and challenges for the significant proportion of those living with HIV who are unable to benefit from the new therapies. In addition, the success of the new treatments in prolonging life will result in significant rises in HIV prevalence, and increasing numbers of people undergoing long-term treatment.
Just as the profile of HIV-AIDs has changed, there is now a strong view among those working in the field that 12 years on, we would benefit from updating the workings


of the AIDS (Control) Act 1987. The all-party parliamentary group on AIDS concluded in its recent inquiry that the Act should be
reformed into a more meaningful tool of accountability and audit, related to progress in implementing local strategies".
I hope that if my hon. Friend the Member for Walthamstow (Mr. Gerrard), who chairs the group, catches your eye, Mr. Deputy Speaker, and the Minister is willing, he will have a chance to take part in the debate.
I propose four changes to make the workings of the 1987 Act as relevant as possible to HIV-AIDs in the UK today. First, when the 1987 Act was going through Parliament, there were fears that people in low-prevalence areas might be identified by the press, and it was decided that where the number of cases was fewer than 10, an asterisk would be used instead.
However, the climate has changed, and it is felt that as long as confidentiality can be guaranteed, it would be useful to amend the 1987 Act to enable reports to publish the number of cases under 10, for epidemiological purposes, for the purpose of studying the allocation of resources between districts, and for the purpose of studying HIV-AIDS strategies among districts.
Secondly, the reports should include data for those resident in a health authority area, as well as those merely diagnosed or appearing for services in the area. I understand that a London local authority believed that it had just six people with HIV living in its area, but it commissioned research which revealed that 179 cases of HIV were readily identifiable as living within that authority's boundaries. The authority had been unaware of those additional people, as they had been travelling elsewhere for treatment.
Making available data by district of residence would help in compiling a more comprehensive picture of the changing nature of the disease in different areas. It would provide a more accurate basis for planning and monitoring prevention work and social service work, preventing health authorities and local authorities from having a false sense of security about the amount and type of work that they should have under way. Also, it would allow more meaningful scrutiny by interested parties of the work of local authorities and health authorities. Again, however, we must be able to guarantee confidentiality.
Thirdly, it is vital that the Government money provided to prevent the spread of HIV is spent effectively, but there are fears that HIV-AIDS funds are not being spent effectively on the people most at risk of getting HIV. It is the job of the AIDS (Control) Act reports to tell us what is being done, but there is concern that the Act and the Department of Health guidance do not do enough to ensure that health authorities account properly for their use of their HIV-AIDS funding, and that there is perhaps too much flexibility for health authorities to apply their own rules. The National AIDS Trust has said:
The returns made under the AIDS (Control) Act are not an effective tool to promote accountability at a local or national level.
It is important that health authorities show how their prevention spending reflects the local profile of the disease. I suggest that the Act should be amended to require the reports to show total expenditure on recognised epidemiological target groups. Those groups should be identified in the Department's guidance and should be mutually exclusive. I also propose that health

authorities should be required to give some evidence that what they are doing is based on good practice, setting out the evidence base on which they are acting.
Regional AIDS (Control) Act reports have not been compiled since the regional health authorities were dissolved. The Department of Health receives 100 reports from the English health authorities, which is hardly a manageable number. That does not make it easy for the Department to make optimal use of the important information in them and the bigger picture does not emerge as a result.
I propose that regional AIDS (Control) Act reports should be prepared and collated annually by the national health service regional offices. We would also benefit greatly from an annual national report from the Department of Health. Such a report, perhaps from the Secretary of State, would give us an extremely valuable national overview of HIV-AIDS prevention, treatment and care work. I should add that that is a devolved matter, although surely the four nations of the United Kingdom should learn from one another.
The Government's decision to initiate a national HIV-AIDS strategy has been welcomed in every quarter, and I welcome the announcement of the steering group to take it forward. In her reply to my letter to my right hon. Friend the Secretary of State for Health setting out these proposals for changes to the AIDS (Control) Act, my right hon. Friend the Minister for Public Health suggested that they should be considered by the steering group. I am happy for it to do so and should be grateful if, in the meantime, my hon. Friend the Minister of State would share his preliminary views with us.
The apocalyptic predictions of the mid-1980s have not come true. When I introduced the AIDS (Control) Act, there was talk of the AIDS time bomb, Edinburgh was dubbed the AIDS capital of Europe and Government reports warned that Britain could have more than 30,000 AIDS cases by 1992. Compared with other European countries, the United Kingdom has done relatively well in dealing with the disease, but complacency about HIV would be a terrible mistake.
There is a danger that people think that HIV is not a threat any more, or that it does not matter if they get it because drugs can help, but HIV is as great a risk as it ever was. There are still 2,500 new diagnoses of infection every year. Given the information we now have about how the disease is transmitted, I hope that my hon. Friend agrees that that figure is still too high. In addition, the new treatments can be tough to take and some people cannot take the drugs at all.
It is vital that the Government money provided to prevent the spread of HIV is spent effectively and, 12 years on, it is time to bring the AIDS (Control) Act up to date. I have proposed changes to give us better accountability, better information and better vision. I look forward to hearing what my hon. Friend the Minister has to say.

Mr. Neil Gerrard: I am grateful to my right hon. Friend the Member for Edinburgh, East and Musselburgh (Dr. Strang) and to my hon. Friend the Minister for allowing me to make a brief contribution to the debate.
As my right hon. Friend said, the all-party group on AIDS did a significant piece of work last year when it looked at what the UK's strategy ought to be. I want to say a few words about some of the report's conclusions and where we are a year on. I welcome the work that the Department of Health is doing and the setting up of a steering group within the Department. Its composition is important, and it is not made up simply of civil servants. Its members include people who are living with HIV, workers in the field, academics and medical experts. We need a range of expertise to be introduced. In particular, we need people who have daily experience of living with HIV.
A national strategy can make a difference, as it has in Australia, where a strategy was developed a few years ago. Some complacency has crept in, not among health professionals or the Department, but among the public and in the media, as if we are somehow immune from what is happening in the rest of the world. One need merely consider the enormous changes in eastern Europe to see that that is not so, or the fact that of the 33 million infections across the world, 60 per cent. are in Commonwealth countries. We cannot regard ourselves as immune.
HIV is a public health issue, and my right hon. Friend noted what the Public Health Laboratory Service Board has said. However, wider issues, to do with discrimination and prejudice, remain very much alive. They may not be the primary responsibility of the Department of Health—legally, they fall to other Departments—but a strategy that reaches across the board must take those issues into account.
I shall end by naming four areas that a strategy should cover. First, it should deal with treatment and care, and with the setting of minimum standards across the country. Whether a person lives in an area of high or low prevalence, he or she should be able to expect minimum standards. Services must also be culturally appropriate. In London, problems arise particularly in the African communities, and it is sometimes difficult to get in touch with people in those communities, and to make them understand and participate in available services.
The second major issue is funding. We are moving towards district-of-residence funding, as the stock-taking group at the Department of Health recommended last year, and most people agree that we should. However, we should consider how we allocate funds. This year's allocations were announced late, causing problems for health authorities and for organisations with which they contract, including service providers that are voluntary organisations. We need to ensure longer-term funding, tying together funds provided by the Department of Health, and those provided separately through local authorities and the AIDS support grant.
The third issue is prevention. Whatever we do in care and treatment, we must first consider what we can do to prevent the spread of HIV. My right hon. Friend said that we should target to ensure that money is spent on the right people—those most at risk. I hope that allocations will continue to be ring-fenced as the National AIDS Trust report suggested that some money given to health authorities for prevention work was not necessarily being used in the areas of highest need.
Finally, we need to involve people who have the virus and who live with AIDS in the development of the strategy, both locally and nationally. Through that involvement, we are more likely to get a strategy that works, and that will be able to tackle discrimination and prejudice, which affect work on prevention. Prejudice and discrimination discourage people from coming forward for testing.
I welcome the work that is being done. I hope that later this year, we shall have the first results of the working group and that the Department will embark on consultation, so that we get a strategy that addresses the problems that still need to be addressed.

The Minister of State, Department of Health (Mr. John Denham): I congratulate my right hon. Friend the Member for Edinburgh, East and Musselburgh (Dr. Strang) on his success in proposing this important topic for debate. I also acknowledge the contribution of my hon. Friend the Member for Walthamstow (Mr. Gerrard). They have both made an important personal contribution to this topic over the years.
The United Kingdom has fared much better than many other countries in limiting the spread of HIV infection. Over the last three years, important developments in drug therapies have led to a dramatic reduction in the number of deaths from AIDS. HIV-AIDS is now often referred to as a chronic disease rather than a disease with a rapidly fatal outcome.
As my right hon. Friend said, HIV and AIDS have not gone away. The people affected are living longer, but coupled with that is a continuing rate of new infections of between 2,500 and 3,000 each year. HIV and AIDS affect mostly young, economically active age groups. It remains an important public health issue that poses some particularly difficult challenges. For that reason, the Government have decided to develop a specific strategy for HIV-AIDS. Our plans to develop an HIV-AIDS strategy for England were contained in the Green Paper, "Our Healthier Nation." To pick up on the point made by my hon. Friend the Member for Walthamstow, we are determined that people who use or work in HIV-AIDS services will have every opportunity to make their contribution to the development of that strategy.
Early and sustained action to control the spread of HIV, such as screening of the blood supply, national health promotion campaigns, and the availability of free, open-access genito-urinary medicine clinics and needle exchanges, has contributed to the relatively low prevalence of HIV in the United Kingdom compared with some of our European neighbours. We have a good record on prevention, and we want that to continue. This year, we provided more than £53 million as a ring-fenced sum to health authorities to fund local HIV prevention activities, and centrally we provided some £5 million to carry out national HIV health promotion activities.
With regard to health service delivery of treatment and care for people with HIV and AIDS, the concentration of specialist treatment centres matches the geographical distribution of the disease. Delivery remains skewed towards London and other major cities. In the current year, we have provided £234 million to health authorities for the treatment and care of people with HIV and AIDS, and £15.5 million to local authorities for care in the community.
As I said, we continue to have 2,500 to 3,000 new infections each year. We have a high number of babies born with HIV. We need to ensure that we respond to the demand for new drugs and for common standards, that we maintain our efforts on prevention and that we ensure that we keep prevalence low. Those are some of the issues that the new strategy will tackle.
The process of developing the strategy was launched by my right hon. Friend the Minister for Public Health at a conference last October. The conference made an excellent start on the process that is now being taken forward by the steering group, which met for the first time last week. I am grateful to my right hon. and hon. Friends for their positive comments on that process. We hope that a draft document will be ready for consultation by spring next year. It will cover issues related to treatment and care and HIV testing and prevention, and it will draw on available evidence and relevant work already under way.
As for strategies for the United Kingdom, my right hon. Friend the Secretary of State for Scotland is tackling the issue, and an expert group, due to report later this year, is currently reviewing the HIV health promotion strategy in Scotland. In 1994, the Department of Health and Social Services in Northern Ireland issued a strategy for HIV and AIDS, which recognised the need for increased efforts in public education, alongside education programmes in schools and youth settings, and the need for support for those involved in this work. Such efforts are continuing.
In October 1998, the Welsh Office published the "Better Health, Better Wales" strategic framework, and work to implement the various strands of the framework is being done by expert groups. The sexual health working group has held its first meeting, and the group to develop the communicable diseases strategy is to hold its first meeting at the end of this month.
The policy context that will shape the strategy in England will include the White Papers, "The New NHS" and "Modernising Social Services", and the forthcoming White Paper, "Our Healthier Nation". We shall also wish to provide the necessary frameworks to monitor the implementation and progress of the strategy.
I want to say something about the role of the AIDS (Control) Act 1987 in the context of the HIV-AIDS strategy. My right hon. Friend was instrumental in the enactment of the legislation through his private Member's Bill some 12 years ago. I think there is no doubt that that legislation laid the foundations for one of the best surveillance systems in Europe for HIV and AIDS, and successive Governments have been able to build on it over the past decade. The Act has, uniquely, allowed the Department of Health and the NHS to build up information on service development and HIV prevention programmes undertaken by local health authorities over time throughout the country.
I am grateful for my right hon. Friend's continued interest in the matter, and for his suggestion that a review of the legislation would be timely and, perhaps, should be incorporated in HIV-AIDS strategy work. His suggestion was supported by a recommendation from the all-party parliamentary group on AIDS in its recent and very welcome parliamentary hearings report on national HIV-AIDS strategies.
I am pleased to report that the HIV-AIDS strategy steering group was satisfied that such a review would fit sensibly into its work plan. Any proposed changes in the

wording of the Act and its provisions will, of course, need careful consideration, but the development of a national HIV-AIDS strategy provides an excellent opportunity to update the Act in line with changes that have taken place in the epidemic, and in the provision of services. The Act provides for the submission of annual reports by health authorities on epidemiology, and on the use of resources for HIV-AIDS treatment and care and HIV prevention. Any changes in monitoring that are considered necessary will be indicated in the HIV-AIDS strategy document.
I recognise, and share, my right hon. Friend's wish for rapid progress. The strategy work provides the opportunity to get any review of the Act right, and I am keen that we should use it in full for that purpose.
The strategy development will also take into account developments on a number of different fronts that are of direct relevance to the formulation of the new strategy. Earlier this year, the Government announced their intention of drawing up an integrated strategy for the whole of sexual and reproductive health, with the aim of joining services and health promotion messages when that is relevant. We have known for some time that the presence of other sexually transmitted diseases can influence the spread of HIV, and it makes sense to link some health promotion messages.
A key component of the overarching sexual health strategy will be the separate and complementary strategy for HIV-AIDS. The separate strategy will provide a clear focus in a difficult area where there are major cost implications for the NHS. Our priorities remain to communicate clear messages about safer sex, to focus on groups at high risk of infection, and to continue to enlist the help of community organisations in delivering our messages.
The overall framework of the sexual health strategy will include key messages from other related programmes, including those involving HIV-AIDS, which will link with the communicable diseases strategy. We will thus be "joining up" health promotion messages when it makes sense to do so, but there will be no let-up in the important targeting of messages to the groups that are most vulnerable to HIV infection. Those are gay and bisexual men, people from countries with a high prevalence of HIV, currently sub-Saharan African countries, and injecting drug users.
This country's excellent surveillance systems keep us alert to the changing epidemiology of HIV and AIDS and allow us to assess the impact on the UK population of the HIV epidemic elsewhere in the world. They also allow us to keep a close watch on groups such as injecting drug users, among whom HIV prevalence has been at a steady level for years.
The NHS budget for drug misuse has been bolstered with funding from the NHS modernisation fund. This year, £12 million has been provided to health authorities. That will rise to £20 million over the next three years to achieve the key objective of increasing participation of problem drug misusers, including prisoners, in drug treatment programmes that have a positive impact on health and crime. The Government's anti-drug strategy is expected to strengthen prevention activities for vulnerable young people, particularly with regard to injecting behaviour.
The surveillance data show that mortality due to HIV and AIDS in 1998 was a quarter of that in 1995–96. That is a direct result of the success of combination drug


treatments that are delaying progress of the disease and decreasing the mortality rate. As a result, we have an increasing prevalence of HIV, which makes our HIV prevention activities even more vital.
Meanwhile, national work for African communities has produced new information resources on HIV issues for African men and women. A mass media and poster campaign and a weekly radio project are all under way. Health promotion directed at the general population to keep them alert to the seriousness of HIV, AIDS and other sexually transmitted infections has included a website and targeted work for young holiday makers. Health promotion work with gay men included a new media campaign that focused on awareness of undiagnosed HIV infection. A second conference on the community HIV and AIDS prevention strategy has taken place, which focused on HIV prevention, understanding risk and gay men with diagnosed HIV infection.
Recently, there have been activities with a direct bearing on future services for people with HIV and AIDS—for example, the published work on standards for HIV services and developing networks for HIV care in London, which we hope will be extended to the rest of the country. We believe that developing networks of services throughout the country, using published clinical guidelines and agreed standards, will be key elements in the success of our overall strategy.
Under the new arrangements, commissioning of services for HIV-AIDS and genito-urinary medicine will be commissioned at least at health authority level. The most complex level of HIV services involving the

administration and monitoring of combination therapies will probably be commissioned regionally. That should ensure that a coherent package of services that is based on previous experience and expertise is developed.
As part of commissioning in the new NHS, alongside work on partnerships between health and local authorities, development of guidance on long-term service agreements is under way. The guidance will build on good joint working and the introduction of three-year contracts, where possible. Many authorities, especially in London and other cities, have long worked in consortia with their constituent boroughs to place three-year contracts with their voluntary sector partners.
The strategy will clearly have an important role in setting the framework for future services for people with HIV and AIDS. The stocktake group was asked to make recommendations for the distribution formula, taking into account current use of the budget, financial pressures generated by combination therapies and the need to preserve open access GUM services. Some of the group's work has been used in distributing part of the treatment and care allocation to health authorities this year, in line with them taking responsibility for their residents. However, the redistribution of such large amounts of money must be considered carefully and in great detail. We need to move forward at a measured pace to ensure that specialist services are not destabilised while—

The motion having been made after Ten o'clock, and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at six minutes to Two o'clock.